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Simple technical analysis

Discussion in 'Beginners Bootcamp' started by Ricex, Dec 16, 2009.

  1. Ricex

    Ricex Sergeant

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    Usd/cad

    Hi,
    thought I'd share something I've been watching on the usd/cad pair. It's another common pattern that we can find on all time frames, a declining triangle pattern. This one happens to be on the daily chart which makes it pretty important in my opinion.

    usdcad triangle example 1.

    It's fairly easy to spot and can be very profitable if played correctly. As we can see the bulls are having a hard time pushing price higher, every battle results in a lower high, but the bears aren't able to make that push through support either so this is squeezing the price tighter and tighter into a corner and eventually something will break.

    Scenario A is a bulls win, strong $ (as we have witnessed recently) and a weaker CAD, breaking through the downward trend line helped also by some weakening of oil prices as this pair correlate heavily with that particular commodity.
    Scenario B is a bears win, the $ returns to it's weakening ways and the canadian economy continues to pull itself out of the mire with some refreshing employment figures etc. It's winter and that means oil demand will increase which could also help CAD.

    Looking at this second chart we can clearly see we are at a potential crossroads for this pair, a crossroad where major moves have happened in the past.... an interesting pair to keep an eye on over the next few weeks.

    usdcad triangle example 2.
     
  2. Forexwatchman

    Forexwatchman Sergeant

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    I'm curious as to how you trade these trendline and support/resistance breaks. Do you jump in as soon as a candlestick body closes over the line or do you wait and see if the line will be retested and hold up as support/resistance? I've found most experts say you should wait for the retest to confirm the move, while my own experience shows its safe to jump in after the candle closes while placing my S/L somewhere above or below the newly broken line. Often times a retest just never happens as the price action decisively takes off once it breaks a line. Or you can still earn pips while it takes off, closing the trade as it starts to correct, and then get right back in once it retests the line.
     
  3. Ricex

    Ricex Sergeant

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    Yeah I think it basically comes down to each trader to decide what's best for them. I tend to be a conservative trader and I like confirmation, others are more aggressive and dive in. I'm also looking for a longer term trade so I don't really need every last pip. If it goes without me so be it, I'll get in again further down the road. It's really like anything in life there are many ways to go about doing something as I'm sure you are aware.
    I have become conservative because in the early days I would get burned a lot with false breakouts and it shakes your confidence. Now I'm a lot more patient and have learnt that I don't need to chase after every trade, I wait for the set-ups that I like and most of the time it's worth the wait.
    The currency markets are a mixed bag at the moment, almost anything could happen.... now where did I put that crystal ball?

    How are you getting on?
     
  4. Forexwatchman

    Forexwatchman Sergeant

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    Well I like to try and have it both ways so I jump in as soon as a 1hr candle body breaks the line and closes, then I set my S/L 20 or so pips behind the line and sit back and wait. Once I can lock in some profit or set S/L to break even I'm good and in those instances where it does come back to retest the line I can get right back into the almost exact same trade yet again, this time for usually a bit more. There's a lot more to it than that, but from my experience you can almost always get to a point where you can lock in profits or break even after the first decent support/resistance line break before price action corrects itself to retest the line.

    Also if technicals and fundamentals are in agreement with what's going on you can be certain its a safe trade. But if your looking for the bigger moves like you were saying, then it's much wiser to wait for a retest and see that the line holds up before placing your order.
     
  5. Ricex

    Ricex Sergeant

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    update and patterns

    Hi,
    today has been interesting with a rather gung-ho sell off of the dollar and some positive news out of the UK and as if by magic, cable and the loonie have given me perfect examples of double bottom and double top formations.

    Had you been watching for this you could have got around 60 pips off CAD and 140 odd pips off cable, and there could be more.

    I took the long trade off of the 38.2 fib level in sterling as I pointed out before, targeting the previous high for 150 pips. My stop was 40 pips at 1.6040, just underneath that previous little low, RR about 3:1.

    usdcad dbexample 1.

    gbpusd dtexample 1.
     
  6. Ricex

    Ricex Sergeant

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    Forexwatchman

    Hi I was just trying to understand your way of playing the break and applied it to todays CAD chart but I can't see how it works unless you took profits straightaway. Had you moved your SL to BE you would have been taken out, could you explain how you would have played it? I may have misunderstood.

    breakout example.
     
  7. Forexwatchman

    Forexwatchman Sergeant

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    Great question and this is a point that I didn’t get into because here’s where it gets technical. First off I don’t trade this pair so I’m doing a “fly by the seat of my pants” analysis. It looks like you have your support line drawn at 1.0445 which is a strong line based off of the daily chart. It looks like that line was broken at the 10am announcement of the ISM Manufacturing PMI which is contrary to what I would have expected due to the outcome being better than forecasts (55.9 versus expectations of 54.5; 4-year high) but if you look into the details of this report you also see the implications for a broader-based global manufacturing recovery and thus a small road bump to the dollars continuing strength.

    Back to the question, had I been involved in this pair I most certainly would have placed the sell order around where you placed it but with the S/L above the 1.0445 level. So I would still be involved in the trade since it has yet to go back above the 1.0445 level. But I would also keep in mind the upcoming economic data, my envelopes, my alligator, and several other factors in order to decide where profit should be taken. Hope I was able to clarify without over complicating as well.
     
  8. Ricex

    Ricex Sergeant

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    Thanks, yes I thought you may have kept your SL above the resistance, be interesting to see a trade that you've taken if you get the time to post.
     
  9. Ricex

    Ricex Sergeant

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    Weak pound

    Hi,
    cable just couldn't keep up today and fell again against the dollar. The dollar index stayed perplexed oscillating around 77.40.

    Had you shorted the double top formation on cable that I put up yesterday you would be up a rather nice 250 pips today and counting....

    Had you missed it from the top then all was not lost. A simple technical analysis tool such as Fibonacci levels could have gotten us into the trade twice on the way down.

    fib levels example.

    Being patient and setting price traps at the 50% fib level would have got you two low risk trades today on cable with plenty of pips. I'm not saying it always works but in my experience it happens enough to keep this tool handy at all times.
     
  10. Forexwatchman

    Forexwatchman Sergeant

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    Ricex I like how clean and simple your graphic is compared to mine, can you tell me what you use to create your images. I'm over here using MS Paint and drawing those crude arrows and that's just not cutting it when it comes to keeping my website professional looking. Thanks
     

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