AUD/USD Commodity Currency Trade

Entry Logic

• Entry triggers when the price of iron ore is in a strong uptrend and the AUD/USD is above the 50-day moving average.
• Confirmation requires a bullish engulfing candle on the daily chart.
• Timeframe is the daily chart.
• Location is a pullback to the 50-day moving average.
• Market condition must be a trending market.

Exit Logic

• Profit target is the previous 3-month high.
• No scaling out.
• Trailing stop is the 20-day moving average.
• Exit on signal failure if the price closes below the 50-day moving average.
• Exit on an opposite signal if the price of iron ore reverses its trend.
• No time expiration.
• Exit on momentum loss if the price fails to make a new high for 10 days.

Stop Loss Structure

• Hard stop is placed below the low of the entry candle.
• No soft stop is used.
• Maximum dollar loss is 1% of account equity.
• Maximum percent loss is 1% of account equity.
• Structural stop is placed below the 50-day moving average.

Risk Management Framework

• Risk per trade is 0.5% of the account.
• Maximum daily loss limit is not applicable for this long-term strategy.
• Maximum weekly loss limit is not applicable.
• Maximum drawdown allowed is 15%.
• Risk-reward ratio requirement is a minimum of 1:2.5.

Position Sizing Model

• Sizing is based on a fixed fractional model (0.5% of account per trade).
• No volatility adjustment is used.
• Conviction sizing is not used.
• No scaling in.
• No scaling out.

Trade Filtering

• Avoid trading when the price of iron ore is in a downtrend.
• Requires a clear uptrend on the daily chart.
• Instrument is AUD/USD.
• This is a swing trading strategy.
• Avoid trading during major Australian or US news releases.

Context Framework

• Trend direction is determined by the 50-day moving average and the trend in iron ore prices.
• Price must be above the 50-day moving average.
• Price should be making higher highs and higher lows.
• Location is a pullback to a key moving average.
• Higher timeframe (weekly) should be in an uptrend.

Trade Management Rules

• This is a set-and-forget strategy.
• The trailing stop will manage the trade.
• Do not add to the position.
• Be prepared to hold the position for weeks.

Time Rules

• This is a swing trading strategy, so time of day is not relevant.
• The focus is on the daily chart.
• No session-specific notes.

Setup Classification

• A+ setup: Strong uptrend in iron ore, clear uptrend in AUD/USD, and a bounce from the 50-day moving average.
• A setup: Moderate uptrend in iron ore and a clear uptrend in AUD/USD.
• B setup: Ranging iron ore prices.
• C setup: Downtrend in iron ore prices.

Market Selection Criteria

• Instrument is AUD/USD.
• Requires a clear correlation with iron ore prices.
• Volatility can be moderate.

Statistical Edge Metrics

• Expected win rate is 55%.
• Average win is 3R.
• Average loss is 1R.
• Profit factor is 2.15.
• Expectancy per trade is +1.0R.

Failure Conditions

• Strategy fails when the correlation between AUD/USD and iron ore breaks down.
• Avoid trading when there is a major shift in global risk sentiment.

Psychological Rules

• Be patient and wait for the setup to align.
• Trust the correlation between the currency and the commodity.

Advanced Components

• The correlation with iron ore is the key advanced component.
• No other filters are used.
• Multi-timeframe alignment with the weekly chart is helpful.

Location

• Strongest when global growth is strong and demand for commodities is high.
• Weakest during global recessions.
• The global macroeconomic environment is a key factor.