AUD/USD – Boundary Protection

Yesterday’s post – Buy AUD/USD on Trend Break – showed my stop entry order. After the release of jobs data today, AUD/USD rocketed higher, through the stop entry order at 1.0337. I should be long AUD/USD. However, my account shows no position. What happened?

The one minute chart tells the story:

AUD/USD – 1 Minute

20130314 audusd

Note the way Aussie rocketed higher immediately the much stronger than expected jobs data hit the market (71,000 new jobs for February versus expectation of 10,000). Many traders interpreted these numbers to mean less chance of a rate cut – hence the move up for AUD and the fall in the share market.

So why wasn’t my order filled? The answer is a combination of the way the market traded and the conditions I placed on my order.

The Market Gapped

While the chart shows the one minute bar at 11.30 is continuous, this does NOT mean every point on the bar traded. In fact, the market “gapped” higher. An independent source (Bloomberg trade recap) shows that in a crucial 8/100 of a second, there were three trades – at 1.0307, then 1.0331, and then 1.0354.

Boundary Protection

Here’s the order I used as an example:

20130313 audusd order

Note that I placed a boundary level on the order – the computer reads my order as “if AUD/USD trades at 1.0337, execute a market order to buy, up to a limit of 1.0339”.

Many stop entry order facilities lack this sophistication – they will execute a market order once the trigger level (or above) trades. This meant that I would have bought at 1.0354, well above my order level and too far from my stop loss order for the trade to fit my plan.

There was no prospect of buying at 1.0337-39 because the underlying market simply did not trade there (I don’t expect a provider to offer better than the underlying market). However, it’s important to note the protection of the boundary. I didn’t pay too high a price for AUD/USD, because my order had defined boundaries.

“I will decide what positions trade to my account,

and the circumstances under which they trade”

About michaelmccarthycmc

Chief Market Strategist - CMC Markets and Stockbroking Regular on ABC, BBC, Bloomberg, Channel TEN, CNBC, SBS and SKY
This entry was posted in Forex, Market, Trading and tagged , , , , , , , . Bookmark the permalink.

6 Responses to AUD/USD – Boundary Protection

  1. FX Demon says:

    Would you expect the AUD/USD to ‘fill the gap’ before moving higher this evening once Euro and US markets weigh in on the positive Aussie job data? It would be difficult to say the interest rate easing cycle will continue given the market is clearly reacting to low interest rates (positive job numbers, buoyant equity market), or is retail/manufacturing still too suppressed and AUD too over valued? Which country would be game enough to become hawkish and risk a massive appreciation of their currency relative to others operating QE? #currencywars

    • Hi Smitheey – not looking for a gap fill – think there is still residual rate cut expectation built in at current levels. Like your thinking on currency wars – there’s little Australia can do to weaken the AUD against majors – perhaps we should embrace a stronger AUD?

  2. John says:

    Hi Michael

    Thanks for the explanation above – I was watching the AUDUSD when it moved & I thought this would be the case.

    What are your thoughts on the AUDUSD given this has occurred?

    John

    • Hello John – my view is that we are likely to trade the range between 1.0150 to 1.0600. Yesterday’s moves suggest market positioning is neutral to short, and interest rate markets are still pricing a (reduced) chance of a rate cut – which makes me think that more rises are likely in the short term.

  3. Brian Parkin says:

    Excellent feature Mike.
    Is there an online user manual where we can read of these features?
    I found the setting easily enough in the settings screen but never realised what it was before. (OK maybe I’m slow or thick or both)
    😦

    • Hi Brian – there’s a video on the use of Boundaries in the Education Zone on the platform (the icon that looks like a graduate’s hat). The order ticket has improved since the video was made, but the principles remain the same.

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