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Saturday, January 11, 2014

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. 

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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. 
You may also watch a video how you can trade volatile trends, which was the case with this particular currency instrument.

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 7th 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. 

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