In last night’s edition of Swing Trader’s Insight I listed the Canadian Dollar futures as having a breakout setup for today. As the Bank of Canada was meeting today, the combination of a chart setup and a news event that was a likely catalyst for a move after the BOC announcement at 9 AM CT.
Yesterday’s action in the Canadian Dollar told us to anticipate a breakout move today, as Tuesday was an NR4 day and a doji bar. This told us to look for a strong directional move if the market moved beyond our support or resistance levels, in this case the high and low from Tuesday.
The Bank of Canada meeting gave us a potential catalyst for a market move afterward, when the BOC would announce updated monetary policy and interest rates. Today’s move shows why we both don’t have a trade on before the event and why we look for opportunities afterward.
I didn’t know what the BOC would do (I knew there was some expectation for a 25 bp hike in short term rates) but one of the advantages of breakout trades is that we don’t have to know in advance; we let the market decide where it wants to go and we get on for the move (when things go according to plan).
The BOC announcement was due at 9 AM. We would look to go long if the Canadian rallied above the Tuesday high of .81080 or if it broke below the Tuesday low of .80485. I enter breakout trades with resting stop orders a few ticks beyond our reference prices; that way I don’t need to try to enter orders in hectic post-release trading.
The BOC did raise their policy interest rate by 25 bp, which was enough of a surprise to send the Loonie sharply higher. Our long entry stop around .81080 was hit right after the announcement, a good example of why it makes sense to have resting orders. Within a minute it traded to a session and over two year high of .82455.
Essential Guide for Futures Swing Trading
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