One reason is that it stalled at that level. (It actually stalled somewhat below that, hitting a low of 1.0310). Since support was at 1.0350 or so, this was a positive sign. Another reason is the bullish divergence on the three-hour chart. There's bullish divergence on the daily chart as well. On the hourly chart, the pair was greatly oversold and I'd expect to see a little relief from that situation, if from nothing else except bottom fishers. The long upper and lower shadows on the hourly candle at that level reflect indecision. Finally, looking at GBPUSD, which often moves opposite USDCAD, one sees a great deal of weakness. So, it's worth a small position and the market will prove it out or not.
On the other hand, let's be realistic. The last three days have been bearish with bold, sinking candles. The pair broke a short-term uptrend line drawn between the January and February lows. That stank. The behavior since the January low doesn't exactly inspire confidence, does it? If the pair was beginning a third Elliott Wave then somebody needs to tell it that price movement is supposed to be robust, bold, and upward.
After making thousands of pips in this pair since October, I had five small losses in February. My trades overall in the pair were still profitable (+637 pips for the month) but this says to me that perhaps the pair is still basing. Supporting my hypothesis that it is basing are the time/price calculations I've calculated for the pair. If these are correct, then we should be getting to the end of a consolidation period. We will see movement, either up or down. If it's going to be down then it will break through the October lows. If up, it should begin to be more energetic—get a little pizzazz as it were and start moving. The superficial work I've done with cycles also suggests we're near a cycle low or coming upon one soon.
So we'll have to see. Here's the three-hour chart.
© Dianne Fecteau, 2010. 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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