I recently found myself in a day trade in USD/CAD that I’d like to talk about. The exact reason for my entry actually doesn't matter for this article but the idea was to buy the pair at a support level where I expected it to at least temporarily bounce off nicely. The best case outcome for this trade was that it would hit my profit target that I had set shortly after the entry. It would give me a nice profit of more than two times my risk and I set it at a price where I was expecting the potential rally to run into sellers again.
For sure I’ve been lucky with this one as shortly after the entry the market rallied nicely straight up for hours without any significant corrections. So the next morning (entry happened during the night) I was pleasantly surprised that USD/CAD was already approaching my profit target, see below on the first chart the market looked like at that point in time.
USD/CAD was just about 7 pips short of reaching my profit target while my stop-loss was still at the initial stop loss level. I think I’ve read a similar story in one of the market wizards books, but in a summary, the situation was like this. The market was trading very close to my profit target that I had set because I expected sellers around that price level. At the same time, the trade could still turn into a full loss as I hadn’t moved my stop loss.
So, in other words, the potential for further profits was just about 7 pips while my risk was about 53 pips! That’s when you simply cannot be stubborn in a discretionary trade, you got to act!
As this had been such a nice, stress-free rally to that point and I’ve been already so close to the profit target I decided to simply take my money and run. I just got out at the market.
If the profit target had been slightly further away I might have chosen another option. Go down to a lower timeframe and use a tight trailing stop to either get stopped out with a nice profit or have the market run into the profit target.
On the right chart, you can see what happened after that. The rally fizzled and USD/CAD plummeted. So don’t be stubborn in trading!
CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
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Editors’ Picks
EUR/USD holds below 1.0750 ahead of key US data
EUR/USD trades in a tight range below 1.0750 in the European session on Friday. The US Dollar struggles to gather strength ahead of key PCE Price Index data, the Fed's preferred gauge of inflation, and helps the pair hold its ground.
USD/JPY stays firm above 156.00 after BoJ Governor Ueda's comments
USD/JPY stays firm above 156.00 after surging above this level on the Bank of Japan's decision to leave the policy settings unchanged. BoJ Governor said weak Yen was not impacting prices but added that they will watch FX developments closely.
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Gold price struggles to attract any meaningful buyers amid the emergence of fresh USD buying. Bets that the Fed will keep rates higher for longer amid sticky inflation help revive the USD demand.
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Bitcoin’s recent price consolidation could be nearing its end as technical indicators and on-chain metrics suggest a potential upward breakout. However, this move would not be straightforward and could punish impatient investors.
US core PCE inflation set to signal firm price pressures as markets delay Federal Reserve rate cut bets
The core PCE Price Index, which excludes volatile food and energy prices, is seen as the more influential measure of inflation in terms of Fed positioning. The index is forecast to rise 0.3% on a monthly basis in March, matching February’s increase.
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