Currency Secrets

While I’m on the bandwagon with congestions I may as well talk about an interesting congestion forming on the USDCAD.

If you look at the daily chart of the USDCAD you can see that it is forming a nice tight consolidation with resistance that is downward trending and support that is somewhat flat (bearish pennant formation?).

We also have popular support around the 61.8% Fibonacci retracement.

What to do? What to do?

As there are too many price spikes through the support zone that currently sits around 1.2290 I wouldn’t place a sell entry stop order there (for fear of being spiked in). What I might do is wait for a successful BREAKOUT candle close below this trend line and then go at market with my sell order.

By waiting for a confirmed break I would also be reducing where my initial stops are placed.

How?

If I were to place a sell entry stop order around 1.2285 based on where the current support trend line lays I would have to place my stop loss order above the resistance line which sits around 1.2365… an 80 pip stop loss!

Yuck.

So… by waiting for a confirmed break I can reduce my initial stop loss by placing it above either the last peak formed inside the consolidation, or 10-15 pips above the broken support trend line (change of polarity – what was once old support now becomes new resistance)… I’d probably prefer the last peak formed inside the consolidation.

So by being patient and by possibly giving away a few pips I can increase my position size and make more!

But what else can we do? Any sell limit orders??

Hmm… to find a good place for my sell limit orders I need to first of all look at where I’m going to get out.

By looking at the hourly chart the stop loss zone would be above the downward trending trend line which hasn’t been spiked, therefore I’d feel comfortable placing a tight stop loss around this zone possibly at 1.2380.

Now that we have that established I try to find an area where price has been frequently (and I refer to price here as to peaks and troughs), and I try to get this zone as close as I possibly can to the stop loss zone.

1.2370 wouldn’t be a good area as this has only had one peak zone in the last few days.

1.2360 isn’t bad as this has *nearly* had three touches in the past few days… possibly reduce this to somewhere between 1.2350 and 1.2360… maybe 1.2355.

Therefore, we have 1.2355 as our sell limit entry price with stops around 1.2380 (25 pips). Nice.

One last word of warning, I made mention of the USDCAD being close to the 61.8% Fibonacci retracement… if the USDCAD does happen to break the pennant formation watch for any whipsaw that might see the USDCAD remain above 1.2267 by today’s close.

Again… there are no concrete reasons as to why the USDCAD *would* rally from this zone as this hasn’t been a bouncing zone in the past, but as other major forex players live and die by these fancy numbers they become self fulfilling and that’s why we need to minitor them.

USDCAD Daily Chart (click to expand):

USDCAD Hourly Chart (click to expand):

Tags: USD CAD

This entry was posted on Tuesday, June 28th, 2005 at 6:43 pm and is filed under USD CAD. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.