STOP LOSS

Let’s examine stop losses. First, there is really no such order as a “stop loss.” We’ve called it that because stop orders are most commonly used in this protective manner, but they are still simply “stop” orders. There are three types of stop losses we will want to use at different stages of a trade. They are all going to be stop orders, but the thinking behind each stop (stop loss) order placement will be different. The initial stop we place when entering a trade is known most often as the protective stop loss. This stop loss represents the potential for loss. It’s a risk-based stop, and it’s placed where the trade would no longer be valid. The risk-based stop is the opposite of the entry. If an entry is the reason to get in, then the point of validity/risk-based stop is the reason to get out.

The risk-based stop is the one we all hope we will have the discipline to place and not have to use. Transitioning from a risk-based stop to a breakeven stop is done only when the trade moves in our favor and to the first stop loss. It should become clear right about now that using support and resistance to place stop loss and profit targets is important because a market moves from level to level seeking support and resistance. The way you place your profit target, the thinking behind their location, is what will set your risk management in motion. This is lost on far too many traders. This is how far too many traders let a winner turn into a loser. How do we define a winner? It’s a trade that has reached the first of hopefully two to four more profit targets. How do you manage two to four profit targets? That is done with multiple lots.

Once prices reach the first profit target, the trade is officially a “winner” and should be protected from a reversal that could happen when prices reach the support or resistance that was the profit target. This is a possible scenario when prices reach any kind of support or resistance, and since just about any order you place will be because of the support or resistance it has, then there is the possibility of either a continuation through this level or a reversal.

The psychological trade many traders fall into here is trailing their stop too aggressively. This is usually because they have experienced so many losers during the early part of their trading and learning curve that the slightest profit triggers a fear reaction: I have to take this profit now! Many times the traps that most of us have to navigate through can be avoided with order entry that lets us observe the market rather than being involved with it too hands on once the trade goes live. There is too much temptation, fear, and greed, and the only way we can avoid and manage these emotions is with order entry.

First of all, the only way a trade should and can be extended past the first profit target is to have multiple lots. One lot equals one profit target. A breakeven stop allows for enough wiggles (the typical amount of volatility) that a position must be given in order to compensate for corrections along the way to the next profit target. Trailing stops are most often and incorrectly done by using some sort of fixed pip or percentage. I’ve already explained why stop losses should not be placed with this type of thinking, and the same thing applies to every kind of stop. Trailing a stop is done as a trade moves in the direction we expected it to and reaches profit targets, which then in turn trigger the transition from risk-based to breakeven to finally trailing stop.

A breakeven stop, as the name implies, is where the trade would be stopped out and yield no loss or gain. It’s placed either just below the entry price if the entry is a buy or just above the entry price in a short. The breakeven should be just beyond the entry as to be able to get maximum use out of the support or resistance that triggered the entry. As a trade progresses, if it progresses, the trailing stop is next.

Trailing stops are what we all love because they mean that no matter what, the exit is still a profitable one. But they should not be placed with fixed levels that trail current prices. The same levels that were once profit targets are now going to be valuable levels of support and resistance that the trailing stops will be placed at. Here’s how it works. On the chart there are multiple levels that the trade could travel to as it moves in the profitable direction and these levels are resistance in a buy and support in a short. Remember that what was once support becomes resistance and vice versa, so that now we are looking at a set of levels that can support prices in an uptrend and be a ceiling in a downtrend. This is exactly what we need for trailing stops.

The stop order itself should not be placed at the profit target level exactly but just beyond. So that means that in a buy, the resistance levels that were once profit targets are now support and trailing stop levels. Place the stop order just below the support level. In a short it’s the support of profit targets that have become resistance so the stop order will be placed just above that level. How much above? Three to five pips to account for the spread will do.

ORDER ENTRY

I think there is too much and not enough discussion of order entry. I can and have talked about the mechanics of entering a buy or sell order with limits, stops, or at the market. Mechanics and definitions don’t do the art of order entry enough justice because they make it seem flat and lifeless. In reality order entry is dynamic.

I have seen over the years that most traders use market orders. This is the “get me in” or “get me out” now order. A market order in the wrong hands and if overused is not unlike the lever on the slot machine in Las Vegas. It’s the impulse buy while checking out at the grocery store. The psychology behind the most common use of market orders is little planning and even less trade and risk management. Now I am not saying that all market orders are somehow misguided, but it’s usually only very skilled and disciplined traders that should use this order type with any frequency.

If a trade is planned ahead of time, before price triggers an entry, then it should be logical that if the trade is preconfirmed a few orders can be “parked” in the market. When I say “parked,” I am referring to pending orders such as limits and stops. These orders can be placed well ahead of time and handle the trade entry, risk-based stop loss, and initial profit target.

I don’t think at this point we need another discussion of what stop, limit, and market orders are. I think the main issue is why and how we place these orders. In fact, it’s really more about the job each one of these orders has. We only have three order types, but which we use has more to do with how we want to communicate our wishes to the market.

INDICATORS

How about indicators? I remember a trader long ago trying to explain his stochastic entry methodology to me. First it was based primarily on the indicator itself and not price (first warning!), and it was reliant upon my learning to recognize this squiggle of a move on the indicators lines (second warning!). Okay, I thought, he’s well intentioned, and this shouldn’t take too long. He showed me a few examples, told me it was really easy (third warning!), and off I went to try and put this to work.

I thought I had found a few good instances where the stochastic squiggled in the right way. So I clicked off a few demo trades. It didn’t work, which is to say the trade was a loser. But I know that a losing trade is not indicative of a methodology not working. Nothing wins all of the time. So I did it again, and again, and again. It still couldn’t seem to generate the entries as he had described, so consequently I would wander back over to his station only to see that he was up! All the “wrong” triggers I took were none of the ones that he took.

“What gives?” I asked. “I did it just like you told me to with this little squiggle here.”
“Oh well, you see your trigger didn’t squiggle like this . . . ,” and he proceeded to show me his squiggle triggers.
“They look the same to me,” I replied.
“No, no, no, yours crossed like this but mine crossed like this.”

This is subjectivity. I’m not saying his stochastic squiggle trigger did not work (but I will add that after the stock market boom of the late 1990s and early 2000s ended, so did his run as a daytrader), but I could not replicate it. I couldn’t see it the way he did. Darn subjectivity.

What good would it be if I showed you a bunch of strategies, and you couldn’t recognize them for yourself, by yourself? I’d be wasting both our time. Since I am both a trader and a teacher, objective tools are a must because that’s the only way I can be sure that there is a high likelihood that you will see what I am seeing! The reason so many traders lose more than they win is that most tools set them up for failure due to the fact that there are too many nuances in interpretation and the market just does not set-up the exact same way time after time.

TRADE WITH PRICE

If it isn’t already obvious, I want you to rely on price and price action to make your trading decisions. This isn’t because I don’t respect fundamentals or data—in fact I do—but they are not reliable when it comes to market timing (your entry) and market direction. This is due primarily to the way news filters through the market and is discounted. Discounting is the process by which news and data is factored into the market, often well ahead of the actual information or data that is released or confirmed. The markets are always forward looking. This means that what traders think may happen is what moves the market.

One simple way of seeing this at work is looking at data releases and the way market participants factor in the forecast or consensus of a report and the way they react to the actual data. So it’s not enough to simply see that a news event has beat or missed expectations (the consensus). You must also factor in to what degree the number beat or missed its mark and also know beforehand how much the consensus was discounted into the

market. The very act of trading news requires that you understand price action. You will notice with frequency that “good data” can make a market sell-off and “bad data” can make a market rally. Again, the data is not compared month to month, or whether the number was positive or negative, but rather it’s compared to what traders expected the number would be. So is trading news and fundamentals a level playing field? Heck, I forget if it is level or not . . . it’s hard enough to even find the field itself! Another factor that makes fundamental analysis unrealistic for not just Forex in Five trading but for most traders is that it is time consuming to gather and analyze the data, all the while knowing that you may not even have the complete picture, or all the data, or even the correct data. Then you must take the last step and determine how much of what data is already factored into price. And I’m not overcomplicating this. This is the process. Instead do what I do, focus on two numbers, the consensus, which is what is most widely baked into the cake (discounted), and the actual, which you’ll find out when everyone else does. This brings up another issue with trading news, the order entry. I will go into detail about order entry in the next chapter, but I want to mention here a few salient facts.

Let’s be realistic. I am not some hotshot trader at a bank or a pit trader with instant access to the market. I am a home office–based, private trader. I can’t trade as anything but that. Nor should I try. I am not privy to all the latest market intelligence, and I can’t delude myself into thinking that I know something that the market doesn’t. Order entry during economic news releases is insane at best and stupid at worst. Order entry platforms have a terribly inconvenient tendency to freeze during these volatile times. Spreads widen, the market jumps. I don’t want to be in the mix during these times but I can still take advantage of trading the moves that are generated during releases. You see the follow-through may come from the release itself, but more often than not, you will have an opportunity to setup and enter a market in advance of the release—if you watch price action, that is. It’s not that common really for prices to make sharp reversals from economic releases. More often the data simply hits the accelerator in the current direction. Weak gets weaker, strong gets stronger.

Are there advantages to being a small trader? Sure. I am nimble, and the market won’t see my trade size coming. Frankly, it doesn’t care. I can watch the big boys make the moves, and I can react to them knowing that the moves they make are large. I can move under the radar, in and out, and do it all over again. Why have I relied on trading price? It’s the only level playing field, and there’s just too much news and fundamentals out there to paint a complete picture and act on it with confidence. I’m never going to know everything, although I try to convince my husband that I do.

TIME FRAMES

Anytime someone asks me, “What’s such-and-such market doing, Raghee?” I answer it by asking “Which time frame?” That must be the first consideration. A five-minute chart could be behaving very differently from a one-hour chart and different still to the four-hour or even the daily. The daily chart is the most psychologically significant, but we should never assume that’s where the trade or the action is! The easiest way to begin understanding what it means to analyze any market across multiple time frames is to view short time frames as the building blocks to larger time frames.

I trade forex off one of five time frames: the 30 minute, 60 minute, 180 minute, 240 minute and daily or end-of-day chart. Sometimes I’ll look at a time frame as short as the 15 minute. But frankly, anything smaller than that begins to make less sense when you factor in the cost-per-trade in forex. With five, maybe six viable time frames to consider, there are not only the individual market cycles to consider, but there are risk/reward issues. Consider that daily charts, due to the fact that a single day’s trading will represent a wider range from high to low than a 30 minute or 180 minute time span can, inherently has more risk because of it. So it’s not enough to find a trade on a specific time frame; you have consider the risk that comes with it and whether the risk is appropriate for your account size and risk tolerance.

No daily chart is going to trend higher or lower or consolidate without the smaller, intraday time frames moving it there. That’s the heart of the “brick by brick” philosophy. It takes two 15 minute candles to make a 30 minute candle, two 30s make a 60 minute candle, three 60s for a three hour or 180 minute candle . . . see where I’m heading? It’s the smaller time frames that dictate the direction of the larger time frames; it’s cumulative. For those of you who use multiple time frame (MTF) confirmation, this is my reasoning for not using it.

I started out trading fully embracing the multiple time frame confirmation philosophy. I did it really for no other reason than I was told in book after book, that it’s what I should do. So what is multiple time frame confirmation you ask? Generally, it’s the process of confirming the overall direction of a market with a comparatively larger time frame. For example, confirming the direction of a 30 minute chart with the direction of the 180 minute or 240 minute chart. When you consider the “brick by brick” philosophy, this is a backwards way of confirming market direction. Remember that moving from smaller time frames to larger time frames is cumulative. Smaller time frames are the building block, the bricks, which build the larger time frames.

At any given time there is a very good chance that each time frame will have slight differences not only in direction but also the quality of that direction. The 60 minute chart may be in an uptrend but the 30 minute’s uptrend might be stronger or steeper or correcting to support better. It’s these differences we compare to determine which time frame we will setup and trade. Here’s another point to consider. Once you choose the time frame you will set-up, confirm, and manage the trade from that time frame alone. Later on, we’ll be discussing market memory, and this will take care of many of the issues traders have when treating a time frame in this manner. Most of the issues stem from a concern over not knowing all relevant points, support and resistance, on the chart. It’s that feeling that you’re not seeing everything you need to be aware of. Working from the market memory, coupled with psychological numbers, will help take care of this entirely.

There is some value in MTF, but I believe it’s limited to comparing intraday time frames to the overall or “daily” time frame. For many traders, trading against the daily time frames is trading against the overall psychology of the market. Now, if there is a clear direction on the daily, this certainly can be a filter. But it’s not a required one.

CONFESSIONS OF A CHART JUNKIE

I still love charts, and they are still my bread and butter to finding, setting up, and managing trades. For every knucklehead who asks me: “You know what you find next to a sunken ship?”

“I give up.”
“A chart.”
“Ha ha.”

I know that there is no way that trading news or fundamentals can work, without an understanding of how much or how little the news has been discounted into the market. So the battle lines are drawn: fundamental traders versus chartists. I don’t think it has to be that way. I think a hybrid of each, knowing which to use when, is the ultimate solution. But I didn’t always think that way.

My chart junkie ways started like most. An interest in learning how to trade and a charting subscription sent to my home each Monday. This was back when I hated weekends because the markets were closed. Yeah, I needed help or at the very least a hobby. There was little else I could get my hands on at this time in the history of mankind because there was really no Internet to speak of, and those giant mochaccino-lands with books didn’t exist. So it was me, glued to a fledgling channel hardly anyone watched called the Consumer News and Business Channel and Schabacker’s “Technical Analysis and Stock Market Profits.”

I would sit for hours poring over about 30 end-of-day charts of the futures market. A pen and ruler and calculator was as sophisticated as it got. Forget streaming data and intraday charts; this was old school. You know there’s nothing like going over printed charts manually with pen and ruler. If I sound like I am pining for the days of yore, I guess in some ways I am.

But it wasn’t perfect. And I’m here to tell you that the bell curve of your trading will follow a path similar to mine, similar to a lot of traders and would-be traders. As with anything new and exciting, you can’t get enough. Not unlike your first car, first home, first puppy, or new love. It’s all-consuming, and that’s what makes it great. You’re going to dive headfirst into that new charting software, demo trade the heck out of that new order entry platform (and start convincing yourself that the practice trades are real), read every book written on the subject of trading, attend seminars, watch CNBC, and nod as though you understand most of it, discover dead Italian mathematicians (Fibonacci), and probably start making a series of the worst trades ever made. Then and only then will you really start to learn. Sadly and typically, the pain must come first. Now, with your bruised ego, you do all of the above again. Only this time there’s doubt and fear, and that’s when you think that someone else has the answers. Here’s a quick tip: They don’t.

Most traders want to know everything. Pursuing that is, of course, insane. But we all get crazy for a bit, overcompensating for the fact that we know that we don’t know nearly enough. As we begin to try and apply too much, naturally we begin that process of whittling away what doesn’t work and what we don’t understand. If we continue to do this, eventually we find that we’re not looking to add but rather subtract until we find the handful of studies, tools, and whatnot that will finally conclude our search of “what works.” That’s closing the gate. Keep the stuff that you want out, and keep what you need in.

The quicker you can recognize where you are along this bell curve, the better and the sooner you can get to closing the gate, the closer you will be to becoming a trader. That’s a fact! There is a common thought that you should never stop learning, and it’s true, but knowledge is depth, not breadth. Knowing more is not always useful, knowing better, knowing deeper, with more understanding is.

It’s more tempting out there in the world of trading, investing, and the markets than ever. Today’s streaming data is more affordable than ever, and the charting platforms that you can find for free online are better than the platforms I used 10, 12 years ago and paid $800 a month for. The indicators are seemingly unlimited, fast, and instant. But you know what, most traders still stink, I mean really stink: losers to the tune of about 90 percent plus. So it’s not technology that’s going to make us better traders. You can use my approach to trade any market and any time frame, forex, futures, and stocks!

One of the biggest mistakes I see with traders is that they fail to understand that no market is an island. There’s no such thing as a market that trades inside a bubble. Markets move one another and are connected across so many fronts: forex to futures to stocks and back again. I don’t consider myself just a forex trader. I trade futures, stocks, options, and I do this not because with price I can level the playing field, get an unfiltered read on market psychology, and trade liquid markets. I do this because it makes all my trading better. You’ll learn more about the futures-forex connection when we discuss my Forex Market Pulse and the specific relationship forex has to the U.S. dollar, Dow Jones, crude oil, and gold.

SHORTING

The real value in trading has always been the fact that traders can profit in both up and down markets. This has always been one of those ideas that people have a hard time wrapping their brains around. Even though I spent a good deal of time telling you that you can always find a bull market in forex, that’s not where I want you to stop looking for opportunities. I’ll let you in on a little secret. Gravity applies to the markets too. Prices always fall quicker than they rise. It’s a function of fear and panic. And, yes, you can profit from it. But before you think of me as some heartless trader preying upon fear, remember that trading and investing must have participants willing to sell. I’m not sure where this concept blipped off the radar, but it’s one that the general public doesn’t seem to get: For every buy there is a sell. The reason prices move higher or lower is based upon where the transaction takes place. However, there still must be a buyer and seller willing to do a deal in order for a trade to take place.

Let’s discuss it in terms that most people can visualize, the housing market. When a house goes up for sale you have a seller, that’s the current homeowner. This homeowner is hoping that there is demand—and lots of it! More demand for the house, and the price at which they can sell (think of it as where the trade will be done at) will be higher. Less demand, and the price at which they will likely sell will be lower. The stock, futures, and forex markets work the same way. When there are plenty of homes for sale and not as many buyers, that’s a buyer’s market. If you were to plot that on a chart, the trend for home prices would be down. Now take that same scenario and apply it to a stock. Let’s use IBM. If IBM came out with a bad earnings report, or if a new product line flopped, or a problem was found in server design—any one of the myriad of issues that can hurt a company and a stock—the value of IBM would likely go lower over concern for what these issues mean to IBM sales and profits. What if you could profit from prices heading lower? We all know we can profit from prices moving higher as good news is discounting into a stock and both traders and investors buy in expectation of more success, profits, and sales from IBM. But what if events go the other way?

I’m going to warn you that you may need to reread this until you get the mechanics of what I am going to explain implanted in your mind. It may take some time to click, but once it does, it’s going to open a whole new world to you and your trading opportunities. I remember the first time I was introduced to the concept of shorting. It was foreign and took me a week to understand. Conceptually it made sense, but it wasn’t until I understood order flow that it made total sense. I began to see why it was such an important concept and a viable position to take in a downtrending market. Funny enough, I actually thought for a short while that it was illegal until my broker walked me through what I am about to explain to you. Remember that while you read this, until people are willing to sell and short the market as we know it, it would not exist. I’m not trying to be dramatic, it’s just plain fact.

I could just say that when you are shorting a market (stocks, futures, or forex) you’re selling it at a higher price and buying it back at what you hope to be a lower price for a profit. But selling something you don’t own doesn’t necessarily make sense, does it? And for those of you who are already familiar with shorting, I am probably preaching to the choir, but come along for the ride here regardless. You may find out a few things about order flow you didn’t know before.

I am going to use a stock example again, because time and teaching literally thousands of traders has taught me that using this as a frame of reference seems to be one that most people feel comfortable with, and the mechanics apply to any market. Let’s take our old friend IBM again. Big Blue is heading lower, and as a trader you understand that one of your
options would be to take a short position in IBM with hopes that it will head lower still from your selling price. How, who, and why?

The how of shorting is basically a process by which your brokerage will allow you to borrow shares of IBM. So that’s where you get the stock to sell: You are getting it, borrowing it, from your broker! Next is taking these borrowed shares of IBM and selling them into the market. Who will buy it from you? The markets are divided into two groups, buyers and sellers, also known as the bid and ask, respectively. Buyers bid on a stock they want to buy and like all buyers they would like to pay as little as possible. The ask, or sellers, are on the other side. They own what the buyers want, and of course they would like to sell it for as high a price as they can get. How much they will get for it depends upon whether it’s a buyer’s or seller’s market, just like real estate.

Imagine two lines of traders, one of buyers and one of sellers. These two groups are lined up by placing the bidder or buyer who is willing to pay the most for IBM at the front of the “buyer’s line” and the seller who is willing to sell for the least amount at the front of the “seller’s line.” The difference between the highest bid and the lowest ask is the spread. Starting to make sense?

At the front of each line are the two participants that are closest to being able to get a deal done. So who gets their price? Well, that’s determined by the overall direction of the market. The seller will have the advantage if prices are heading higher (more demand) while the buyer will have the advantage if prices are heading lower (more supply). In the trading world this balance can go back and forth from moment to moment. Since we are talking about shorting, we’ll assume that the overall market psychology is bearish. This means that the overall direction of the market is heading lower and that the buyers are able to have their way, which means that the trades are generally being done at lower prices.

So since you are shorting and you have your borrowed shares of IBM, you are on the ask or “seller’s line.” You have a price that you would like to sell these shares for, and your hope is that you can find a buyer and that prices will head lower after you sell your shares.

So how do you profit from such a position, and why would anyone buy it from you? The first part is easy. Since you borrowed the shares from your broker, all the broker expects is that you return the shares to them. It’s much like borrowing a book from the library. The library made you get a card so you are “approved” to borrow a book, and they expect you to return it. The broker in this case is typically going to let you have those shares borrowed out for pretty much as long as you need them. When you sold IBM, you collected a certain price per share from the buyer knowing that at some point you are going to need to buy some IBM sooner or later to return what you borrowed. Let me say that again, because here is often where the wheels fall off the wagon for a lot of folks.

You sold your borrowed shares of IBM into the market, and the buyer of those shares gave you, for sake of keeping this simple, $100 per share. Now you have this $100 per share, and that’s half the equation here of this short position. Now based on your analysis you think that prices should head lower, and by golly, they do! $98 . . . $93 . . . $88 . . . $87 . . . $84 . . . until they level off at your target of $80. So you sold at $100 and prices sold off to $80—a $20 difference. Remember, your broker wants their shares back at some point, and you’ve decided today’s the day and $80 is the price. So you execute another order. Your first order was a SELL. Your second order is a BUY. This will allow you to realize the $20 profit and return the shares of IBM back to your broker, thus closing out your short position. You sold these shares at 100 and are buying them back at 80, so the difference is yours.

I had also mentioned the “Why?” Why would someone buy these shares from you? Well, that’s what is so wonderful about the markets. There are always going to be contrary opinions. Without them there would be no market. When I think I see a buying opportunity, there is someone out there who thinks that I am out of my mind and that there is a selling opportunity. Without both sides of the equation, buyers and sellers, there would be no market; there would be no investing, no trading, nothing! So next time you hear about someone shorting the market, remember, there had to be a buyer for that trade to be done and without both types of market participants there would be no liquidity. We’ll talk later about liquidity and how the forex is the most liquid market on the planet and why that’s so important to us as traders. For now though, I hope your mind is starting to see the opportunity in playing both sides of the market.

And by the way, my shorting example of IBM has nothing to do with anything happening in the market. I have been an investor in IBM for many years. It is the first stock I ever owned. My father, a proud IBMer, worked for them until the day he passed away.

A BULL IS ON THE LOOSE!

One of the more appealing aspects of the forex market, beyond the 24-hour always open trading, is the fact that there’s always a bull market somewhere amongst the pairs. The idea of buying a stock or futures contract or a forex pair is much more familiar to most people, especially since most of us are already familiar with investing. Investing and trading do have two completely different mindsets. For investors, the whole idea is ownership: to own more shares of a company or mutual fund or even ETF (electronically traded funds). Most people incorrectly believe that trading is buying low and selling high . . . wrong! That is actually investing. Now, of course, investors do hope that their holding will increase in value, but that is secondary to ownership.

Traders don’t own anything; in fact, they don’t want to because the goal in trading is to profit from price movement. Instead of owning, traders control shares, contracts, lots, or pairs with leverage. Now what does all this have to do with playing U.S. dollar strength or weakness? Traders understand that in order to profit from price movement they must buy and short. That’s right, “short.” After all, trading means making money in up and down markets. If you were only to play one side of the market you would consistently miss opportunities to benefit from when the U.S. dollar moves a pair lower.

Consider this move. The U.S. dollar gains strength on the euro. The resulting move on the chart would be weakness, a sell-off and even a downtrend in the EUR/USD (euro/U.S. dollar). In order to profit from this relationship a trader would have to short or sell the EUR/USD. Here’s another example, one that has hit closer to home for most people. Crude oil has been on a rollercoaster as of late, reaching new highs and selling off to significant lows. In fact, over the course of less than six months, crude oil has moved over $100. Crude oil has a strong correlation to the commodity currency of the U.S. dollar/Canadian dollar (USD/CAD). The USD/CAD is affected by U.S. dollar movement but as with all forex analysis, you must consider the other side of the pair, in this case the Canadian dollar. The Canadian dollar or “loonie” is affected by crude oil prices because Canada is a huge exporter of oil. When oil strengthens, this helps the loonie strengthen. If oil weakens, it can take the loonie down with it. So as the crude oil market sells off, the loonie has been weakening against the U.S. dollar, which results in a downtrend on the chart of the USD/CAD. The only way to benefit from that movement in the forex would be to short the USD/CAD and profit from the weakness.