In this second installment (of three) on building a trade, Fawad Razaqzada describes set-ups in natural gas and the Canadian dollar.

Yesterday we described a couple of recent trade set-up in gold. Here, we apply a similar methodology to the natural gas market and the Canadian dollar.

My intention is to provide you some ideas about how to look for trades, manage the risk while in a trade and how to exit. July and August offered many opportunities, the first is one we took in natural gas in late July.

Example: Natural Gas part 1 (July 29, 2020)

Natural gas has played out beautifully for bullish speculators recently following the big sell-off earlier in the year. The charts below were first utilized to support a bullish trade in early July.

support
Source: TradingCandles.com and Investing.com

more support
Source: TradingCandles.com and Investing.com

I shared this similar chart on twitter and for my subscribers in the Telegram group, only by now the market had created a clear bullish signal on the daily after bouncing back from the above green shaded support area (see below).

bull signal
Source: TradingCandles.com and TradingView.com

The fact price was respecting support and showing signs the bears were getting trapped, prompted me to issue the above signal.

The chart below shows the outcome of that position a couple of trading days later.

nat gas
Source: TradingCandles.com and TradingView.com

The above trade was both fundamentally driven and based on technical factors. Fundamentally, hot weather was expected to boost demand for natural gas, while the bearish factors had been priced in by recent weakness. Also, crude oil had already been rising, boosting investors’ appetite for other energy-linked assets. Technically, there was a clear false breakout reversal pattern when prices failed to hold below the old low.

Example: Natural Gas part 2 (July 29, 2020)

Following that successful trade of natural gas previously, the weekly chart displayed a big breakout candle and crucially it held above this weekly support level (see chart below).

cfds
Source: TradingCandles.com and TradingView.com

I wrote in the group…

So far this week, NG has consolidated but I think it is now ready to go higher again. it held the weekly support level at 2.05 following yesterday’s pullback.

I then shared the following trade idea and the accompanying daily chart.

more cfds
Source: TradingCandles.com and TradingView.com

I wrote: Natural gas long trade idea. On the daily, it formed a doji candle yesterday. So the idea is to go long on the expected momentum that should ideally come in today above the doji candle. The invalidation is below the weekly support level, in case it decides to come back down one more time then go up. But if and when it creates a new high above last week’s high then we can move the stop higher. The target is based on 161.8% fibonacci extension of the retracement from last week’s high.

This trade worked beautifully and we did see the burst of momentum I was expecting on the very next day, as it hit the target (see chart).

burst
Source: TradingCandles.com and TradingView.com

As mentioned, FX has also been trending thanks to the sell-off in the U.S. dollar. So, I have concentrated on shorting the against the other major currencies. Some trades like the USD/CAD and USD/JPY short worked perfectly, although I have also had a loser during this period. Here is an example of U.S./Canadian dollar trade.

Example: USD/CAD (4th Aug 2020)

This was the rational behind the short USD/CAD trade and the chart on which the idea was based on:

quote

rational
Source: TradingCandles.com and TradingView.com

And the outcome:

outcome

Source: TradingCandles.com and TradingView.com

Example: USD/JPY (July 24, 2020)

I gave a trade recommendation in the USD/JPY following this signal (see chart below).

I wrote in the group: USDJPY Daily chart looks like it might be about to break lower following today’s breakdown below short-term support around 106.70

short term support
Source: TradingCandles.com and TradingView.com

Based on the above daily chart, this was the breakdown on the hourly, with the attached entry and exit details:

hourly
Source: TradingCandles.com and TradingView.com

For the trade, the invalidation was above the most recent one-hour congestion zone above that broken 106.70 level. There was no reason for price to revisit this area if the trend was indeed as bearish I had envisaged, which luckily was the case (see chart).

bearish
Source: TradingCandles.com and TradingView.com

It was getting late on the day with the weekend approaching, so I decided to close it manually ahead of the target (which as it turned out would have hit in the following week):

That is an example of common sense discretion that traders should utilize. With the target so close, no need to risk something unexpected going on over the weekend when the markets are close or experience narrow volume.

Tomorrow we conclude this lesson with examples in the British pound, Brent crude oil and one more in gold.

Fawad Razaqzada, Senior Market Analyst at TradingCandles.com, is an experienced forex market analyst and economist. He posts market analysis on all sectors. Previously he served as a market analyst with FOREX.com and City Index. Fawad has created a couple of YouTube videos on gold and silver recently, which contain a lot of insights on precious metals and trading in general. You can watch them HERE, HERE and HERE.