I mostly journal (and comment) about my misbehaved trades. Why else but to… ? But today, I want to document a strategy I developed Friday, a mechanical currencies spread that works in volatile range bound markets.
Firstly, I already identified that #crude, risk (high yielding) currencies ($CAD), and safe-haven currencies ($JPY, $USD) are volatile and range-bound for the day. One of the sign was the sell-off loss momentum for the day, Friday, which turned out to be an inside day.
Since $CAD/JPY follows #crude, which was rebounding, I bought $CAD/JPY. However, the pair doesn’t move as fast as crude and was misbehaving. Thus, I also bought an inverse pair $USD/CAD. $USD and $JPY are safe haven currencies and in times of crisis when liquidity is demand, they tend to move together. $USD being backed by the U.S. Treasuries market and $JPY being backed by Japan’s current-account surplus that reduces the country’s dependence on borrowing abroad.
So, now I have two pairs that move in opposite directions.
I peeled off some profits first on $CAD/JPY after the pair loss momentum and set a protective stop at Break Even on the rest.
I peeled off some profits secondly on $USD/CAD (see chart) on a failed test of the 78.6% Fibonacci level and set a protective stop at Break Even on the rest.
Even though this is a spread trade, one should always exercise great entry into the trade. That is, you must have a well-defined entry and exits. Identify the range and intermediate trend.