AUD/USD - Boundary Protection

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"