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Posts Tagged ‘fading’

confusion3.jpg Here’s an interesting idea for the AUD/CAD – which you’ll notice is in a great uptrend. There’s an opportunity for a bullish breakout soon. But stepping back, to a 5-year chart, notice the story of fibonacci.

What do do??

Let’s consider Fibonacci retracements. Fibonacci lines are drawn from the bottom to the top of a major move – it’s really that simple – and the lines are then possible support and resistance. On a big move like we had several years ago on the pair, you reckon with the “fibs”. We’re right under the most significant one at .9350, and it has at been support/resistance before (see chart below). So how do we participate in such a nice trend with little room to run? By the time it breaks out it will be right under or at resistance…

audcadfibs.jpgSomething you could try is “fading“. I did an article on it in our technical commentary a while back, by the way. Fading is entering right at support – forget the bounce. Or better, you buy when the price is poking a little below the support line. The stop loss is placed just below support. The thought is if you lose you’ll lose very little – as little as 20 pips. If you win, you’ll have so much more to gain – say, 200 pips. There is a high chance the trade won’t work because there’s no bounce yet, but it allows you room to run if you’re running out of room (resistance is close).

audcad1.jpg In the chart on the left, the red oval is an area you could buy if the price falls lower. The green is an example of a stop loss area. If you try fading, understand you’ll have more losing trades the winners, so don’t give up after a few losers. As with everything else, much practice is needed.

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