Unlike single stocks which can be choppy and news dependent in the short-term, forex follows trends very well. Thanks to trading around the world and longer trading hours, the gaps seen in stocks aren't very common in forex.
The chart below is the one year plot of USD vs. CAD, on a daily period. Many trends are visible and have been outlined.
Among the most obvious ones is the quadruple top at 1.30 followed by many short-term trends.
A typical pattern is present in the uptrend which started in January 2009. The uptrend is supported by the trendline. Once broken in March, the line gets retested from the bottom at the beginning of April. Failure to break to the upside was the start of a new downtrend, which is outlined.
The downtrend has sped up multiple times from a slow and steady downtrend within a channel to a faster decline. The last trendline, is too fast and steep to be sustained. Although, looking at the sharp rise in USD in October 2008 proves that eventhough steep, this pattern can go on for a while before breaking...
I am looking for a counter-trend trade here. When the price breaks the current trend to the upside and stays above that line, I will look to buy USD and sell CAD. But only for a short period of time and for a quick profit. It is important to be cautious not to stay in too long as the trend is still to the downside. Tight stop-losses will help in this trade.
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