We have an excellent question from Micheal here, asking about a current trade we have running in the AUDNZD, asking whether we should consider closing down the trade seeing that the recent risk off sentiment has sent some downside into the AUD, and we also had other short-term factors like Aussie GDP and comments from the RBNZ regarding the Kiwi strength playing against our position.
So, Michael’s question is should we close the trade and look for a possible better entry position.
I think this is a great question Michael, and one that we can discuss in a more broader or general sense as well.
So, when it comes to swing trades like these, or more med-term trades, there is always going to be the short-term catalysts and sentiment shifts that pushes and pulls against the trade or in favour of the trade.
Now, the big question comes in like you said, do we close this trade and wait for better entries or do we hold such a position. And I think it comes down to the reason why you are entering, but also the type of breathing space you’ve given the trade.
So, when we had the short-term sentiment shifts coming out against this particular trade, I thought that the overall fundamental bias still remains to the upside, and I still think it does, so I am happy to hold a trade like this as long as I think that the premise for entering is still valid.
Because the challenge that we face with closing the trade, is that we never know how far it might go before it starts to move in line with the longer trend. We might see it come down lower, but seeing that the fundamental bias is still titled higher we also might not.
So, the challenge really comes in with whether the short-term catalysts are enough to push it lower, and then, if it does, how far do we allow it to go lower before we enter again. For me, with longer-term trades like this, as long as I think the stop loss is in a place where I feel I am comfortable with the trade to breathe, I will just leave it be, unless a short-term catalyst comes along that changes the med-term bias for the trade, then I would just close it out and wait for another possible entry opportunity.
The other thing to also consider is the overall price action. On this example we’ve had a couple of attempts at that 1.90 area and every time the pair moves above it we see a strong rejection lower. So, if price action continues to push against a position and just doesn’t move in the way we would expect it to that can also be a good sign that the timing on the call might be misplaced, maybe the pair moves higher but it might consolidate a while first before doing so, and that might see it meandering sideways for a while which can be frustrating, and who knows it might move sideways for long enough just to see other short-term catalysts come in that changes the med-term bias lower.
I think the takeaway is whether the trade has enough room to breathe based on the timeline that you are trading in, and whether the short-term catalysts are enough to change the med-term outlook, and then whether price action is supportive of the pair moving higher, and as long as those three are still in place I am happy to hold if that makes sense.
So, I hope that helps with the question also in a more general sense as well, any others please don’t hesitate to let us know.