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Beginning Traders Start Here.TM | |
FOREX TRADING |
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UNDERSTANDING USD/CAD
 The USD/CAD foreign currency exchange rate is the price of one U.S. dollar - the base currency - in terms of Canadian dollars - the quote currency. For example, a bid/ask quote of 1.0563/1.0568 means that one U.S. dollar can be bought for 1.0568 Canadian dollars and one U.S. dollar can be sold for 1.0563 Canadian dollars. If the U.S. dollar is expected to appreciate against the Canadian dollar, then the above quote might rise to say, 1.0591/1.0596. The forex strategy in this case would be to buy USD/CAD. If, on the other hand, the U.S. dollar is expected to depreciate against the Canadian dollar, then the above quote might fall to say, 1.0528/1.0533. The forex strategy in this case would be to sell USD/CAD.
USD/CAD FOREX TRADING STRATEGY
 Let's say that a forex trader is watching the USD/CAD exchange rate just before the release of important U.S. economic data at 8:30 a.m. (EST). The data are expected to provide insight into future interest rate movements in the U.S. and this, in turn, could lead to an aggressive movement of the dollar, though the direction is unknown. To capture a sustained movement, the trader will rely on a forex trading system that uses 10-minute candlestick charts (instead of intervals of shorter time period). According to this system, USD/CAD will be bought whenever the exchange rate rallies up and through the 8-period weighted moving average (WMA) and sold whenever USD/CAD falls down and through the WMA. The trader need not predict direction: just follow the forex signals. The clock finally strikes 8:30 a.m. and the dollar begins to move, triggering a trade as follows:
* Pip value will change slightly in response to movements in the USD/CAD exchange rate. Based on the rules of the forex trading system, the trader does not enter a stop order but rather, will close the trade when the USD/CAD exchange rate falls below the weighted moving average. The trader is prepared for a relatively long holding period as may be necessary to capture any sustained price movement. The chart below shows price activity over the next three hours.
 After rallying for nearly 3 hours, the USD/CAD exchange rate fell back under the 8-period WMA and the position was closed with details as follows:
IMPORTANT NOTES
1. The above example of a forex trading system is for informational purposes only and is not meant to construe trading advice. While
prices are actual, the period was selected to best illustrate the particular forex trading system and no implication is being made
that this system will always produced positive results.
2. Increasing (decreasing) the
leverage
and/or notional value in the forex trade example shown above will increase (decrease) the risk, used margin, and
magnitude of resulting profit or loss. In choosing these values, the forex trader should consider the amount of available risk capital, trading experience
and tolerance for risk.
3. The used margin is the minimum amount of cash that must reside in the forex trading account at all times so long
as this currency position is open. Used margin calculation varies in part depending upon the value of the exhange
rate upon establishing the position. For multiple positions, the used margin for all
open positions are aggregated. Should the account value decline below the used margin, a margin call may be issued and
all open positions may be automatically closed by the forex trading platform.
4. The example above assumes the forex trading account is with a U.S.-regulated forex broker. As such and because of the
FIFO rule, the stop
order is an entry order and cannot be tied to the open currency position. It, therefore, must be manually
canceled upon closure of the forex trade.
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© 2010. World Link Futures, Inc. All rights reserved.Forex trading involves risk and is not for everyone. Only risk capital should be used. See About Us for general disclaimer. Keywords: USD/CAD forex trading strategies, USD/CAD forex trading strategy, forex trading system, forex signal, forex strategies, forex strategy, system forex, forex trading signal, forex trading account, forex trading platform Abstract: USD/CAD Forex Trading Strategy, an example from a forex trading system.
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