Bad news seems commonplace for the US dollar; and traders appear to have grown numb to the battery of fading economic trends. At the same time, this hasn’t led the greenback to mark strong rallies on every better-than-expected release, but it has offered some stability for the majors – as well as a number of definable ranges. For USDCAD, the congestion has a slope in the form of a rising trend channel that has developed since the pair drained off some of the volatility seen in its sharp November rebound. We see range potential in this formation and believe a hedging strategy would aid a trader that doesn’t have time to watch the market – especially since entry, stop and target levels will change as support and resistance rise with the channel. </strong>
[B]Currency Pair: [/B]USD/CAD
[B]Entry Zone[/B]: Go both long and short at the market if spot is within the 0.9950 – 1.0350 range (this range will change with time)
[B]Protective Stop[/B]: The long position’s Stop should be set below 0.9825 (below the nearby swing low) and the short position’s Stop above 1.05 (above a considerable pivot level). These levels should be adjusted as the range rises with the channel
[B]Profit Target[/B]: The long Target should be set below 1.0350 and short Target above 0.9950 (or with enough distance from the channel extremes to improve the probability of taking profit). They should further be adjusted over time as the channel evolves
[B]Profit Potential[/B]: 350 pips (excluding transaction costs, slippage the placement of the targets within the range)
Event risk has had little influence over the fate of USDCAD for some time. When major technical formations that are based on congestion are developed they can often continue for many months. A trader should use a hedging range strategy for this pair over a traditional range strategy if they have trouble calling tops and bottoms and/or they psychologically need to be in the market to stick with the trade. There are clear entry, target and stop levels that would work well with today’s positioning. However, this trade will need to be monitored and levels adjusted higher as long as the channel continues to define price action.
[B]When should I use the hedging feature?[/B]
The most effective way to trade a market in which you are not sure if it will continue in the same direction or reverse is to find concrete support and resistance levels. Trading in such a price environment involves isolating currencies that are trading sideways in ranges (or channels), and then selling at the top and buying at the bottom of the channel. This allows you to pinpoint levels where significant price action will take place. Currencies that tend to trade sideways are often currencies with low interest rate differentials such as the EUR/CHF and the EUR/GBP.
The hedging feature is currently available on all accounts using FXCM’s No Dealing Desk service.
For more information on FXCM hedging strategies please visit What Is A Hedge Ratio? - FXCM UK