USDCAD—Need to see some legs

Last Wednesday I went long again in USDCAD at 1.0467, just above its lows for the days. As I pointed out that morning, support was at 1.0496 (the daily uptrend line) and 1.0418 (the Nov. 11 low). It went as low as 1.0450, both in the morning and in the afternoon and looked as though it was basing on the one-hour chart. Early Friday morning I peeked at the trade (since I was taking time off for the holiday weekend it was just a peek) and I moved my stop well above breakeven to 1.0614. Later that day the pair turned down and took out the stop for a profit of 118 pips. This is the story of this pair lately—up and down, up and down in some serious sideways action since November 6.

This morning I am looking to buy again. On the hourly chart, it has dipped to 1.0536, a general support area, but there was no great conviction to the low. What I mean by that is that RSI wasn’t plunging into an oversold area and the candles were throwing off lower shadows. Lower shadows hint that the pair is rejecting lower prices. I didn’t find last week’s lows discouraging because I felt there was some holiday madness to them (i.e. low liquidity).

I’ve been mostly going long in this pair since mid-October and been heartily rewarded by it (+944 pips in October; I haven’t yet totaled November). I still “believe” the pair is basing but my readers know that I work hard not to get fixated on my beliefs. (I wrote about it basing in my November 17 blog at http://forexreflections.blogspot.com/2009/11/usdcadchop-chop-chopping-along.html)

Still, it is in an uptrend since October (but overall downtrend is down so one must be cautious and use tight stops). I also find it encouraging that RSI is staying well above oversold levels on the daily chart so a bottom may be in. However, the pair must start showing some legs. For one thing, it has to take out the last swing high of 1.0853 in a definitive, non-namby-pamby way. It also must get through this gruesome resistance area around 1.0750 that has capped it the last two times it has tried to climb. But, as I wrote last week, even if this is nothing but a consolidation before heading lower, it has offered up some lovely pips.

On the one-hour chart, there’s indecisiveness as evidenced by the upper and lower candle shadows. I may pick up a small position at the trend line (around 1.0551), depending on price action on short time frame charts. If not there, there’s support not far below that point. The support levels are:

1.0551—3-hour uptrend line
1.0476—daily uptrend line
1.0418—Nov.11 low
1.0379—Oct. 21 low
1.0272—going to the dogs low
1.0208—absolute bottom; if this doesn’t hold then it’s the bye-bye low

Here’s the one-hour 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.