Updated: Aug 1, 2020
Fundamental Forecast NZDCAD
In this post I'm going to discuss what went well and what didn't go so well for our trading analysis on NZDCAD on January 26th. This was a successful trade idea and the fundamental trading analysis/ strategy was implemented effectively.
If you want to watch the trade analysis review video you can watch it here.
If you haven't gone over the NZDCAD Jan 26 analysis yet you can read it here.
Just by assessing the price chart alone many of you can realize now that it was a great 1:3+ risk reward trade. Meaning if we risked £100, we would have gained £300 in this one trade. The unleveraged returns was about 5% (+15% at 3:1 leverage) on this position. But, you may be asking if its a winning trade how do we assess what went wrong?
This is where you should tell yourself that a winning trade is not always right and a losing trade is not always wrong. It's still very important to assess winning trades just as it is to assess losing trades.
Everything that we did right was the fundamental strategy and analysis. We followed the exact method we teach in the academy which is great. This was using the right economic indicators and gauging their impact against the exchange rate such as: GDP differentials, the A2 Milk Company Analysis (Dairy Major NZD Export), Steel & Tube Holdings LTD Analysis, Interest Rate Differentials and NZX 50 (CAD) vs NZD/CAD.
After realizing that on a fundamental level we were confident about a potential down trend forming for NZDCAD we then properly used the COT indicator which is in our portal to assess the sentiment of the market.
Here we were able to identify whether hedge fund positioning was with our idea or against it. Since the hedge funds also had the same idea it further gave me confidence in the idea. The opportunities may not always line up with hedge funds but it's important to give you the highest chance possible in a trade which is why we include it within the analysis.
The final step in our successful analysis was to assess the volatility of the currency pair. Why is this important? It's important because we don't want to be using random numbers as our stop loss and target. We want to be smart in setting stops and targets and these numbers change depending on the asset and the volatility. Once we found the target and stop we set them appropriately.
After the trade hit 1:3 it was a great time to hit take profit. But could we have let the trade run longer? The maximum lifespan of the downward move was about a 1:5 risk reward could we have waited longer to gain more profit here?
The answer is actually no. As an advanced trader, at the level of 1:3 risk reward to determine if you want to continue in the trade or not you must reassess the position and do the analysis again to get an updated score overall.
This score was actually starting to show an opposite conviction meaning to LONG NZDCAD at the time. Surprise, surprise the NZDCAD started to retrace. We could have potentially reversed our position here if we were quick enough to catch on.
Thankfully some of our members were able to identify that long position and earn some profits on the way back up too and we released a new video on a potential long term move to the upside coming up, as long as the fundamentals are signaling a buy and if COT positioning is in our favor. If you haven't read the analysis on that idea do give it a read here and let us know your thoughts too!
In the end we did the right thing to get out on a 1:3 risk reward profit. The thing we did wrong here was identifying a potential reversal in the market, although personally as a conservative trader I really like to wait for the COT positions to line up with my idea. It's always safe to see if the big boys money is going to push your idea or not!
Enough rambling from me anyway, congratulations to all the members who banked the profits on that position and thanks for reading the analysis.
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