Trade Breakdowns – USDCAD, AUDUSD And Volatility Index Futures

*Post-trade breakdowns. Analysis and trade management explained for multiple positions*

Happy Friday to you all! I hope the week has ended well for you and you are looking forward to the weekend. It is an extra long one for those of you living in the U.K so get outside and enjoy it!

I am going to use this blog post to do a full breakdown of my last 3 trades, why I entered them, how they were managed and the current status of each. Let’s begin!

USDCAD – Long positions @ 1.38600 and 1.40200

USDCAD 1 hour timeframe chart.

This trade was actually very simple but highly effective and momentum helped to return good profits reasonably quickly. The initial entry was a long position after the rejection of an intraday support zone. You can see this at the bottom of the chart where the first black arrow is situated.

Price had already bounced off of this zone before and this entry was confirming the support zone held strong and price was likely to climb upwards. Buying at support zone (selling at resistance) is one of the easiest trades you can make and often work well if you are not too aggressive and use the best price reversal zones.

Make sure you place your stop loss order well away from any previous price wick lows/highs that have tested the zone as these will likely occur again. Also try to use zones that have proven themselves multiple times in the past.

The second trade entry was very similar but I used a different support/resistance zone. After price had bounced from my initial long trade entry I was looking for what it might do next. The 1.40200 had support price previously and I knew I was going to use this zone in my trade management. I took some profits here on my initial position but when price then broke through the zone and made new highs, I entered a second long position on the retest.

Remember, support and resistance zones are like floors and ceilings. Once broken as a support, you can then use them as a resistance and vice versa. This is the basics of price support/resistance zone trading and how markets tend to make waves as they move.

Trade Management.

I often take profits as trades move in my favour because being greedy is not good, especially in current market conditions where volatile and price reversals are common. The table below shows the profit taking and closing of positions at each level.

Trade 1: Long @ 1.38720
50% closed@1.40200 resistance zone1.8R return
25% closed@1.41500 resistance zone1.75R return
25% remains open
Trade 2: Long @ 1.40200
50% closed@1.41500 resistance zone2.15R return
50% closed@1.40200 entry price0R return

As you can see on the chart and tables shown above, price went on to form a small double top at the intraday resistance level around 1.41500. I took some profits on both trade entries at this level but I was of the belief that price might go on to break through and make new higher highs next.

Unfortunately, multiple pieces of news meant that was not to be. Firstly the US Fed announced even more quantitive easing through the form of buying another 6 BILLION DOLLARS worth of treasury coupons from the markets. This had an inverse effect on the strength of USD. Around the same time the Saudi Oil producers announced they would raise the price of their Crude Oil after the previous slash in prices they did back in March 2020. This helped boost the value of the Canadian Dollar.

Price reversed and I was taken out of my scale in position at 1.40200.

Current Update.

USDCAD 1 hour timeframe chart.

I am still holding a portion of my original long position from 1.38720 with the hopes that US dollar strength returns to the markets today and over the next few days. I do believe that if the US Fed had not announced even more QE (buying another $6bn of treasury coupons) then USDCAD would be approaching 1.41500 right now and potentially trying to break to new highs.

I am looking to see if price makes a lower high at the zones shown on the chart above or if it manages to make it’s way back up to 1.41500 and higher. If I see significant resistance form and lower highs I will close the remainder of my long position.

AUDUSD – Short positions @ 0.65420 and 0.64500 and 0.64550

This trade was a bit more complex than USDCAD and it also ended up becoming a bit more messy. I failed to manage my open positions as well as I should have and this resulted in missed profits.

My first short trade was a lower timeframe trendline break and retest at an intraday resistance zone that was forming. These trades are often more aggressive than a simple support zone bounce because you will see increased volatility and charts can sometimes appear choppy. If you can see through this and look at the basic patterns/technicals that are forming then you will be able to enter trades.

A good example of this was a Spot Gold short trade I entered back in March. The link to this trade breakdown and review is below.

The gallery above shows both the 15 minute chart (with the initial short trade entry) and the 1 hour timeframe chart with all 3 of my short trades recorded.

Price sold off with strong momentum last week. It was a fantastic move and I used this to take some profits fairly quickly at 2 different support zones and price targets. These are all shown on the chart with the up directional arrows and are also listed on the table below.

After the sell off, price made a lower high and began to reject a previous support/resistance zone at 0.64500. I entered a scale in short trade upon a big 1hr bearish engulfing candle and aimed to trade AUDUSD down to new lower lows and my final target @ 0.62750.

This trade went well and price sold off down to the next intraday support zone at 0.63800 and this is where my first error occurred. I should have taken some profits here. I made the trade risk free by moving my stop loss to my entry price like I do with all of my positions but I didn’t lock in any profits. Ideally, I would have closed 50% of the position to secure a 1R return but I did not. Overnight price reversed and took me out of the trade for no return.

My 3rd trade entry on this FX currency pair was a losing position. I shorted again on the rejection of the 0.64500 price zone after a big bearish candle closed but this lead almost right into the US Fed QE announcement and the surge in price because of the USD weakness. I closed this trade for a 1R loss @ 0.64850 along with the remaining 25% of my original short position for a 0.45R return.

Trade Management.

Trade 1: Short @ 0.65420
50% closed@0.64500 support zone1.5R return
25% closed@0.63800 support zone1.25R return
25% closed@0.64850 break of resistance0.45R return
Trade 2: Short @ 0.64500
100% closed@0.64500 entry price0R return
Trade 3: Short @ 0.64550
100% closed@0.64850 stop loss order-1R return

After all 3 positions and trade management I got out of my AUDUSD short trades with a final return of 2.2R. This is an average return for 7 days worth of trading but I believe my trade management was the costly part. I should have locked in more profits on my scale in trades.

VIX Futures

Trading Volatility is some what different to trading FX, Commodities or Indices. It moves a lot faster, it makes bigger % daily changes and it is a lot more influenced by market risk sentiment. I have been experimenting with Volatility a lot more recently and am beginning to incorporate more into my trading.

VIX is the short code for the CBOE Volatile Index which is derived from pricing and trading of the S&P500 index. It is therefore a measure of implied stock market volatility.

VIX May 2020 Futures 1 hour timeframe chart.

Once again, the basic technical analysis behind this trade was a basic support zone buy entry with fundamental bias.

I tend not to talk too much about market fundamentals on this blog but I am always aware of them. Every good trader, even 100% technical analysts should make sure they know what is moving markets, what high impact data is due to be released and they should maintain a good feel for underlying market sentiments. It makes life a lot easier in the long run.

I bought VIX futures at 31.800 on the 29th April after seeing multiple bullish rejection candles form above the 31.500 support zone. This is marked on the chart above with the white support line and B (buy) tag. From a technical perspective, it appeared price was finding support and buyers existed at this level enough to keep price from selling off further.

Fundamentally I was waiting for another opportunity to get long exposure on US stock market volatility. We are in strange market times now and each week we are almost guaranteed news and developments on the battle between coronavirus and government stimulus, all of this equates to market chop and volatility.

After my initial long trade entry price continued to test the support zone before strong buyer volume came in and VIX began to move. As an example of how VIX moves so fast, on the day that price began to climb upwards, the daily low – high range was equal to 10.76% of the daily open price. That is huge when you compare it to the GBPUSD currency pair which had a daily low – high range of 1.72% of the daily open price. That is over 6.25x larger than the daily move of the major currency pair.

Trade Management.

Trade 1: Long @ 31.800
50% closed@34.80 resistance zone1.88R return
30% closed@37.20 rejection of resistance zone2.02R return
20% closed@32.70 break of support zone0.22R return

As always I take profits as a trade moves, this is even more of a priority when price moves so quickly as it did on this VIX trade. Much like FX trades I look at previous support and resistance zones to take profits if price shows rejections at them. These are all shown in the table above and on the chart marked by S (sell) tags.

I had closed out the majority of my long position within 2 days of entering the trade. When the value of an instrument gains over 18.8% in 2 days you should take profits… don’t be an idiot!

I left a small portion of VIX longs running through the weekend market close where price actually gapped up on open but began to sell off. I eventually closed the balance for a nominal return on Thursday morning.

End Note.

I think what this blog post teaches you the most is that trade management is more responsible for your overall profitability than the actual trade entry itself. This is more applicable in times when market volatility is high and price is choppy because trade management and risk management is what determines the amount you win or lose.

When markets are like they are, don’t be greedy. Lock in some profits, get exposure reduced and believe in your analysis until the charts say otherwise. I think ego is a big killer of effective trade management. Traders with big egos who believe their projected profit targets are 100% correct will often end up taking very little profit from a profitable trade because they hold out for an end goal that never gets fulfilled.

If you are interested in learning more about financial market fundamentals, trading Volatility or even my trade management strategies then you should seriously consider purchasing my Mastering The Markets – Retail Trading Course.

Useful Links:

All my technical analysis is done using the TradingView platform. You can get access via the link below.

My preferred broker of choice is IC Markets. Low spreads and trading costs really help long term profitability. A link to their site is below.

FTMO Trader Funding Programme.

Thanks for reading and please don’t forget to LIKE, SHARE and FOLLOW my blog to stay up to date with the latest market analysis and trading education posts.

DISCLAIMER: None of the information posted on this site is to be considered investment/financial advice. Trading is high risk and you should only trade with money you can afford to lose.

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