March 9 - USD.CAD Trade Setup

Of the currency markets I've been looking at the USD/CAD patterns. Following the volatile swings of currencies in 2008 and early 2009, it has come into a calmer trading range. Below is a 1 year plot of the USD/CAD currency exchange:


In this recent trading range we have a resistance level at around 1.075 and support around the 1.025 level. With USD and CAD trading near parity, there are a lot of fundementalists who beleive that CAD is still undervalued to the USD and that it will once again trade higher than the USD - in the long run.

This, however, is not a blog dedicated to long-run fundementalists. Short-term swings are what I'm interested in!

With the tripple bottom pattern set up here at the support level, I look to enter into a trade long USD against CAD. I will enter into half my intended position today and look for further confirmation for the other half.

In this scenario, as with any breakout scenario, there may be a false breakout before coming the trends go back to their original patterns. A good trader will always keep that in mind when trading breakouts or against them. Here I am looking for price action to stay within the band and stay in range.

June 17, 2009 - Quick update on USD (counter-trend trade)

Follow up to the post on June 5th.

The USD.CAD has been a typical counter-trend pattern. In my last post (June 5th) I mentioned that the break in the steep downtrend line has provided a high-probablity potential for quick profits.

The chart below shows the same chart parameters and trendlines as the one posted on June 5th but now more of the trend is revealed as time has passed.



Let's take a closer look with the hourly breakdown:


Some of the support and resistance lines which were drawn on June 5th have held up very well - the local support at 1.0955 has be retested 3 times since.

I have drawn a new trendline to capture the recent move to the upside. It isn't a distinct and confirmed trendline but as a technical analyst it is in my nature to start trying to define new trends...

For those of you still long the USD vs. CAD to capture more profits, remember that this is a counter-trend trade. The general trend is still to the downside. Use smart stops to limit downside moves.

June 5, 2009 - quick profits with counter-trend trading

Following the setup I was waiting for and posted on June 2nd, USD.CAD broke the sharp downtrend line and stayed above it for a day.


The long-term chart shows price breaking the down-trend line. Now lets focus on the shorter term chart to see the action better.



When price pushed above the steeper downward trendline, it triggered a watch for entry into a trade. The US Dollar then came back to retest the line, which coincided with the latest high. In this scenario, the previous resistance has become the new support line.

I got in at 1.0975 and sold at 1.1111 for a quick profit. Although I would say that this rise may continue for a longer time period, I did not want to over stay my welcome with a long position in a down trending market. After all this was meant to be a quick counter-trend trade.

If the support level is retested and holds I will look to get in again. For now, I am on the sidelines.

June 2, 2009 - USD.CAD picks up speed

Winds of change seem to be flipping the trends on everything these days. Keeping with the times, currencies have reversed trends.

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.