Monday, November 16, 2009

USDCAD--Is it basing or what?

This pair is fun, isn’t it? Up, down, correcting, basing?

First, on the trade where I took partial profits last week at 122 pips, the remainder of the trade profit stopped out at 60 pips (1.0492). Now the question is what, if anything, to do next. Nothing is a valid choice in trading. As the saying goes, you can’t lose money if you’re out of the market. True, true, but you can’t make money either. The key is to have solid reasons for getting in. Studying the chart tells you if you do.

On the weekly chart, the pair closed lower than last week. The high close was two weeks ago at 1.0848. From this one clue, one could speculate that the pair might have peaked and is resuming its downtrend. RSI on the weekly is not oversold. Another way to look at it on the weekly chart is to see it as in an uptrend from its low in 2007 of .9058. The second touch of that trend line would have been 1.0208 three weeks ago. The trend line is currently coming in at 1.0376 which happens to coincide with a level I identified a couple of weeks ago as providing support since it was a Fibonacci confluence area. Looking back on the weekly chart one also sees polarity in the 1.0325/90 area. Even though the pair dipped to 1.0208, it has not had a weekly close below 1.0370. So this is an interesting area and, so far, it’s staying well above it, not dropping lower than 1.0417. However, it previously broke a long term uptrend line in May and again in July.

The last few weekly candles don’t have upper shadows for the most part.

I dropped my original Elliott Wave (EW) count on the weekly chart since the recent lows have dipped into what would be wave one’s territory. While there is little EW theorists can agree about, one of the three inviolate rules is that wave four cannot do this. So I’ve crossed through those numbers and set the top of wave one at March’s high of 1.3065. If that is true (big if), then we’re in a wave two correction that could have completed or is wave A of a zigzag. Next move would be up, either way.

Bottom line, the weekly chart is mixed. Here’s the weekly chart:

On the daily chart and staying with EW, it could be in wave two (must stay above 1.0208) or in wave B of an ABC correction, possibly a zigzag. The pair broke above the downtrend line. The RSI is staying above oversold. The candle prior to the last completed one is a bullish engulfing. The rate of descent has definitely slowed. And yes, I went long at 1.0473. I feel OK about his because I’ve been tracking the pair so closely and I’ve taken so many profits off the table. But I could not heartily recommend this action for most people since the strength of bearish sentiment is strong on the USD and we still don’t have enough information to say the trend has reversed. Here’s the daily chart:

© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.

My purpose in writing this blog is to show you how one trader, me, makes trading decisions and survives while trading Forex. One of the biggest problems I had when I first started trading was trying to apply the “rules” to actual trades. Another was the psychology—limiting losses and letting profits run. If you study my blog you’ll see how I deal with both those issues. So my writings are not trade recommendations but rather educational in purpose. You have to decide on your own approach to trading. Remember that trading is risky.

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