BACKGROUND: Based upon a bullish trend on the daily chart (technical) and a bearish trend in oil (correlation) we liked buying the USDCAD on Friday. The pair opened (Thursday 5pm Eastern Time) at 1.3087 and our price target for the next 24 hours was 100 pips higher at 1.3187. Oil opened (Thursday 5pm Eastern Time) at 44.55 and our price target for the next 24 hours was 43.15
DETAILS: USDCAD daily chart had a 5-day pattern of higher lows and higher highs and we anticipated this pattern could continue for another day; and if the highs from 2 weeks earlier were taken out we could see the USDCAD pair trading as high as 1.3187 (why 100 pips above the opening price will be explained in a separate blog; it’s a simple but unique approximation method).
Oil was near 10 week lows and we expected to see those lows taken out and a continuation down as low as 43.15 on Friday. Since oil and USDCAD have a strong negative correlation (oil down, USDCAD up) we felt an expected decline in oil would enhance the chances of the USDCAD pair trading higher.
CHALLENGE: Finding a comfortable and stress free USDCAD buy trade entry and stop loss for Friday July 22, 2016.
SIMPLE STRATEGY: Buy at the start of the trading day (Thursday 5pm Eastern Time) at 1.3087; put a 60 pip stop loss 1.3027 (1.3087 -60 pips) and a 90 pip take profit 1.3177 (1.3087+90 pips).
RESULT: 1.3177 profit target reached. Friday’s data (Open 1.3087, High 1.3185, Low 1.3056, Close 1.3128)
MORE COMPLICATED STRATEGY: After the 8:30am Eastern Time Canada CPI and retail sales simultaneous economic news releases the USDCAD will likely spike lower if the news is good for Canada. If this happens (the news is good for Canada and USDCAD spikes lower) you can then buy a cheap Binary option bet that USDCAD will retrace or reverse the news decline. Your risk would be limited to the cost of the option and your potential profit could be 5 to 10 times what you paid for the option. Of course if the payoff is 10 to 1 your chances of winning will be low but if you are comfortable with “taking a chance” for a high return this is one way of doing that and having a fighting chance of being successful.
RESULT: The Canada economic news was pretty good and USDCAD spiked down 45 pips; it then reversed which resulted in winning Binary option bets.