Trend trade in usd/cad

New Year has begun and new trends are emerging in financial markets. Last year was very good for shorting Japanese Yen as well as Australian Dollar across the board. I am not sure whether this tendency will continue this year, but we can be almost sure that another trend is starting and that is Canadian Dollar downtrend. Let me look at usd/cad currency pair today. 

Should you look at a weekly chart of the security you would see that usd/cad dollar after a sharp fall (in 2009) and the downtrend that lasted till 2010 has been in a large range for over three years. What you should know is that the longer a security stays in a range, the stronger the trend will be after it breaks out of its� range. 

In a way the pattern that you can see on a weekly chart resembles inverted head and shoulders. This should have given us a clue that a downtrend is over and at some point we are going to see price break upwards. This also tells us that a new bullish trend will start. We simply need to define that critical point which broken will let us know that a bullish trend is in progress. 

In usd/cad case it was 1.0700 level. You can see from a daily chart that at the end of 2013 the price hung around the area and formed a bullish triangle. Look at 4 hour chart to see the pattern better. 

Trading the pattern is not really difficult. You simply have to place a buy order above the upper trendline of the bullish triangle with a stop below the lower trendline of the triangle and move with the trend when the pattern is broken upwards. This is precisely what happened on the 7^th of January this year (2014). 

Therefore, I can state that we are in a bullish trend and the minimum target is 1.1700 level (around 1000 pips above the break point). Of course, the will be some resistance levels along the way and we should not get scared of that. However, I do expect a strong move, because as I said when patterns that are 3 years in length broken the moves are very strong and do not end after a few hundred pip advance. 

I will be adding to my position along the way and I will keep you updated on that. I likewise see some bearish powers in progress in New Zealand dollar, but I will expand on that in my future posts. See you soon. 

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Disclaimer

Trading financial markets carries a high level of risk, and may not be suitable for all investors. All information on the blog http://trend0.blogspot.com/ is of educational nature and cannot be considered as advice, recommendation or signals to trade in any financial markets.

 

Analyzing chart patterns: inverted head and shoulders

Hi, I am happy to continue writing on my series of chart patterns. Last time we analyzed bullish and bearish pennants that are continuation patterns and today I want to expand on one specific reversal pattern. I covered head and shoulders pattern a few years ago and today I want to discuss its� twin: inverted head and shoulders pattern. It is often formed after a security has been in a prolonged downtrend. The pattern indicates that the downtrend is most probably over and we are going to see higher prices soon. It is a very powerful pattern as prices often start trending for a prolonged period of time when the pattern is eventually broken upwards. 

The pattern consists of three lows: left shoulder, head and right shoulder. The structure is joined by a neckline that constitutes resistance. 

How is inverted head and shoulders pattern formed?

Firstly, there has to be a downtrend in order for the pattern to be formed. After a prolonged collapse prices start to go (sort of) parabolic and at some point suddenly shoot up. At this point (usually) the left shoulder and the point for a neckline are formed. Then the previous downtrend resumes and prices go below previous low (the left shoulder). Then the security rises again, but fails to go beyond previous resistance. It falls back again, but this time lower low is not achieved. At this point the right shoulder is usually formed. All the other attempts to go lower fail and the security starts going upwards bit by bit till it reaches the highs of previous rally after the left shoulder was formed. It my bounce off the level or break it (the neckline). When a break upwards occurs new uptrend usually starts. If the break does not occur and prices go below the right shoulder the pattern is distorted and you may justly call it a failure. 

False breakouts

False breakouts are a repetitive thing in financial markets and prices often come back to the range. However, you should have specific entry rules and you either you risk and jump on the trade or you stand aside and continue waiting when the breakout occurs. In the latter situation you will be sure that it was the true head and shoulders pattern after the move up have gone so far that it is no longer useful for you to join it. So, you go long after the neckline (resistance) is broken.

Various time frames

If you read classical technical analysis you will be told that these type of patterns last from six months to a few years. However, you can find both �head and shoulders� and �inverted head and shoulders� patterns on various time frames. These patterns might be formed on hourly charts and the patterns can stretch a few days� or a few weeks. And you can successfully trade both long and short term patterns. At least my experience confirms the fact. 

How to trade the pattern

The best way to trade the pattern is to buy the break of the necklace. The chart above shows you how you could enter the market with long orders. The necklace (or resistance) was at 80.67 point. That�s the place to enter your first package of orders (if you are a serious trend trader). The ideal place for a stop loss order was below the low of the breakout day. In our case it was 80.12 level. So, you could place your stop at 80.07 (five pips below the lowest point of the day). How could you have exited the market? There are plenty of ways to do that. Much depends on the size of your position, number of orders and the state of the market. I like moving my stop as the market makes new highs by placing the stops below clusters of daily candles. These spots are marked with blue rectangles on the chart above. Finally, market stops going upwards and starts going sideways. This is one of the signs that the tendency is about to end. Eventually, your stop loss is hit and you are out of the market with nice profits. What a nice way to trade the pattern!

Ok, I will finish now. Be sure to read related articles to learn more on technical analysis. I promise to expand on this in my future posts. 

I hope you benefited from the post. If you liked the post I would also be happy if you gave a plus on Google+, tweeted, liked it on Facebook and other social platforms. Have a nice day. 

Vytas.

Related posts:

Analyzing chart patterns: pennants

Analyzing technical patterns: flags

Wedge technical pattern

How to do technical chart analysis

Six key elements of technical analysis

Triangle patterns

Head and shoulders pattern

If you want to see and experience what real investing in financial markets such as Forex, stocks and commodities is all about I recommend trying innovative social investment platform of Etoro. Initial deposits are as low as a few hundred bucks. The best dealer I have heard of so far!

http://www.etoro.com/A41516_TClick.aspx 

Disclaimer

Trading financial markets carries a high level of risk, and may not be suitable for all investors. All information on the blog http://trend0.blogspot.com/ is of educational nature and cannot be considered as advice, recommendation or signals to trade in any financial markets.

7 random advantages of swing trading

In this post I want to continue the topic of swing trading and to cover the advantages of swing trading in financial markets. I think I will have to talk about disadvantages too. But that will be in my future posts. I have already mentioned in my previous post that I consider myself a swing trader. Let me give reasons why I have chose this way to trade the markets. 

Firstly, you have bigger opportunities to have better risk/reward ratio. One should know that in order to have consistent profit in trading one must have his profits bigger than losses. A swing trader usually stays longer in the market and as if the price goes in the direction he has predicted he will have much bigger profit than his initial stop loss order is. If you compare that to scalping where a trader might close 20 consecutive trades profitably and then one bad trade wipes away all of his profit due to large stop loss and too small profit targets. 

Secondly, it gives you a chance to take advantage of current momentum in the market. When markets move nowhere it is difficult to make money, but when they catch momentum and start running in one direction, it is quite easy to have winning trades. 

Thirdly, you do not have to sit glued to your computer screen all day long. Doing a daily analysis for about half an hour is enough. Monitoring your open trades does not take a lot of time either. 

Fourthly, it does not give you so much psychological stress and does not require so much accuracy, concentration and ability to react fast as is necessary in day trading. Stress handling is essential in trading and in swing trading you have an upper hand. 

Fifthly, your trades are prepared and you are proactive rather than being reactive. You plan your trades and do not react to some rumors, news and other similar things that a day trader might have in mind while making his trades. 

Sixthly, you do not have to worry about exact entry level. This is impossible for day traders. If you missed your entry level by 20 pips (in day trading) it is worthwhile thinking whether to take a trade or not. In long term trading this is never a problem as you are planning for a ride of 500 pips or more (in Forex). The same can be said about stock or commodity trading (sorry for ignoring you guys). 

And lastly (it naturally flows out from point number six) you do not have to worry so much about exit levels. By this I mean that you do not have to make spontaneous decisions as exit levels are also pre-planned. 

P.S. By the way, if you are trading Forex, you can also make money from interest (if you are go long on high yielding currencies).

Ok, hope you enjoyed the post. 

See also:

Swing trading

Swing trading for dummies

Disclaimer

Trading financial markets carries a high level of risk, and may not be suitable for all investors. All information on the blog http://trend0.blogspot.com/ is of educational nature and cannot be considered as advice, recommendation or signals to trade in any financial markets.

6 important trend trading tips

This blog is all about various market trends that happen in various markets and last for various periods of time. In the post I wanted to share with you with some tips that would help you to trend trade. I know that you will never have a clear tendency in the market, but when they do develop you have to know how to take advantage of that.



If you want to see and experience what real investing in financial markets such as Forex, stocks and commodities is all about I recommend trying innovative social investment platform of Etoro. Initial deposits are as low as a few hundred bucks. The best dealer I have heard of so far!
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1. Firstly, you have to find out whether the market is in a range, going sideways or trending. How do you do that? Not very difficult! In an up trend you will usually see higher highs followed by higher lows. In a downtrend you will see lower lows followed by lower highs. If you do not see that the market is not in a state of a trend. If the market is going nowhere, it is probably going sideways. If it is fluctuation by some set support and resistance levels it is probably in a state of range. 

2. Secondly, (if market is not going upwards or downwards at the moment) you need to see whether the price is in consolidation period and may resume itself soon or it is over and the market will go into long ranges or possibly even sideways movements. It is very natural for securities to pause and rest after some strong moves (upwards or downwards). That is a sign of a healthy trend. If market goes too fast without stops in one direction you can expect the move to exhaust itself very soon. 

You can also be sure about one thing: that at some point traders will no longer be willing to pay a high price for a security that is going up and sell at very low prices when a security is going down. 

The thing that helps you to see whether it is only a consolidation before another run up is that corrections (counter tendency moves) in a trend are very fast and quickly form reversal patterns and continue the ride in the previous direction. There might be a few days or a week of going against the major tendency, but higher highs and higher lows (in upward move) and lower lows and lower highs (in downward move) are still intact. 

3. Thirdly, when you see that market formed a reversal pattern after counter trend is over, you should prepare to add to your position and go with the trend, or if you do not want to add to your risk, you should move your stop loss order closer to the current price. 

4. Fourthly, if you see more and more choppy price action it might be a warning that a trend is about to end. Therefore, you should be alert and ready to get out of the market any time. Avoid opening new positions if you see this.

5. Fifthly, When the slope of the moving average (let us say 200 or 50) starts flattening it is a signal of a move which will be over soon. Do not open any more trades.

6. If the security fails to make new highs (in an upward trend) and new lows (in a downward trend) for weeks it is a strong warning about the possible end of the move, which maybe around the corner. Do not open any more trades in the direction of the move and be ready to close all of your orders or to be stopped out. 

Ok, I will finish now and keep other trend trading tips for another time. Hope you benefited from the post. Have a nice day!

See also:

Trend

Disclaimer

Trading financial markets carries a high level of risk, and may not be suitable for all investors. All information on the blog http://trend0.blogspot.com/ is of educational nature and cannot be considered as advice, recommendation or signals to trade in any financial markets.