Updates: Week Ending Feb 14, 2025
The past week continued to be an interesting one. Trump has remained tariff-happy. While Canada and the rest of the world have some time before the next round of tariffs on March 12th, the currency markets seem to be struggling to establish a bias.
The US dollar index's uptrend has come to an end. It's no longer holding above a key neckline, so I am expecting more selling pressure over the following week.
While I do not trade the US dollar index CFD directly, this index does provide a directional bias for all major currency pairs, whether the US dollar is the base or quote currency.
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| US dollar index (DXY) Daily |
Over the past week, I experimented with a different set of trading parameters. I set my take profit at 0.5x the daily average true range (ATR) and my stop loss at 1x the ATR.
My thesis is that this will increase my win rate and overall expectancy. I'm essentially playing a probability game, but I'm now tweaking the probability of winning even more in my favor.
I took quite a few trades, and below were the noteworthy ones.
Trade Recap
The first trade was on the AUD/USD currency pair. On the daily timeframe, you can observe that price was in a downtrend since September 2024.
In early-February, price failed to make a new lower-low pattern. As a result, I entered a buy trade after price crossed above the horizontal level plotted.
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| AUD/USD Daily |
The daily ATR at the time of my entry was 60 pips. Therefore, my stop loss was set at 60 pips and take profit at 30 pips. The below screenshot shows my trade parameters on the hourly timeframe.
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| AUD/USD H1 |
The next trade I'd like to highlight is XAG/USD, or silver. On the daily timeframe, I identified a trend continuation pattern as price was in the process of cross above a horizontal level that I had plotted.
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| XAG/USD Daily |
The interesting thing about this chart is that only a wick is showing. This is one of the challenges of backtesting because what happens in real time versus after the bar has closed paints a completely different picture.
In real time, this was a breakout signal. On the hourly timeframe, as shown in the chart below, I plotted a buy stop trade with a take profit of 0.5x ATR as well.
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| XAG/USD H1 |
The benefit of using 0.5x ATR is that I'm getting my money and then I'm getting out. I'm not staying in a trade longer than I need to, nor am I trying to ride the intraday volatility. Statistically, there's a very high chance of hitting a take profit positioned at 0.5x ATR so that's all I'm aiming for.
In the event that the trend continues upward, then I will scale into this position by identifying ranges on the hourly timeframe and then I will wait to enter a buy trade each time price breaks above the respective range.
Lastly, the third notable trade was on the USD/SEK pair. On the daily timeframe, price first crossed below the upward trendline. After crossing this trendline, it then crossed below the horizontal level.
The combination of these two level breaches indicates that sentiment has turned bearish. Below is the daily timeframe showing this trend change.
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| USD/SEK Daily |
The hourly timeframe below shows my trading parameters. In addition, there's another interesting observation that can be made on this lower timeframe.
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| USD/SEK H1 |
Following the same methodology, this trade efficiently hit my take profit. As for the other observation, this currency pair is the prime example of something else I could've done.
Since this pair continued to trend on the hourly timeframe, I technically could've plotted ranges and scaled into additional short positions. Unfortunately, life got busy and I did not.
That being said, this is a good lesson learned to ensure I'm focused on trending pairs throughout the week.