The Canadian Dollar futures had a breakout for Friday. This signal yielded a slow moving trending move that rewarded patience with holding onto the trade.
In last night’s edition of Swing Trader’s Insight I labeled the Canadian Dollar as a breakout trade candidate for today. Thursday was an inside day and showed significant range contraction from the previous session. These patterns told us that traders were indecisive about direction on Thursday, and a move out of this balance point could lead to a trending move if there was a new consensus as to whether “fair value” was higher or lower.
For entries on breakout trades we look for a move beyond close in support or resistance, as they are evidence the market believes the market is over or under valued. If we are correct, the market will tend to move in one direction, gaining momentum in a positive feedback loop as it moves.
For the Canadian Dollar today, the downside trigger level was the Wednesday low of .7508. This had been the low of the week; to break it, especially on a Friday, could be the catalyst for a trending move. (I would have been willing to buy if there was an upside breakout; I try to not pick a side with breakout setups.)
We got our short entry around 7:50 AM as the market slipped below our trigger level. The session high was 7518.5, so we could have a tight initial stop loss. Holding onto shorts paid off as the market trended lower into early afternoon, and it was relatively easy to stay short as it made lower highs all the way down.
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