USDCAD—Coiling

It has been several days since I’ve blogged about this pair. Since mid-October, it appears to be basing, encouraging some bullishness about the pair (as I’ve been) or at least pausing in its downward trajectory if one remains bearish.

The pair is coiling in a triangle formation. Elliott Wave (EW) practitioners believe the breakout from the triangle is in the direction in which price entered it (down in this case). In coiling triangles, however, the breakout can be in either direction. The triangle displays, in a visual sense, the struggle between buyers and sellers as they vacillate and stall before finally resolving on a direction. It becomes more intense as time passes and this is why the triangle narrows. Ideally, a triangle resolves between ½ and ¾ of the distance from its start so this one is getting mature. Perhaps a resolution is at hand.

If it does successfully break out in the downward direction, the move will likely be a large one as the coiling has provided a chance for the pair to store up energy. However, initial breakouts can be false, setting up a bear trap, so the trader needs to be careful. Whether price breaks above or below, throwbacks (if above) and pullbacks (if below) are common.

I’ve blogged in prior posts about the nature of basing. It’s a process, not an event, so prices tend to rise and fall as the pair finds its bottom. Most of my calculations suggest the pair is basing and I’ve posted several trades that have resulted in my earning hundreds and hundreds of pips since October. However, it’s important to maintain neutrality—i.e. not get stuck in your beliefs. Watching price action on the short-term charts is the way to go.

I currently have two long positions, one from 1.0413 of which I’ve taken partial profits at various points, and one I added on a dip to 1.0527 and which is currently profit stopped at +20. The first one is currently up 227 pips and the second, 112 pips as of 7:40AM EST.



© 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.