Forex Trade Idea: EUR/CAD Double Top

Getting back on the horse today with a simple forex setup: the double top. Are traders ready to sell now that it’s breaking lower?

Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary trading framework blog.

EUR/CAD 4-Hour Forex Chart

EUR/CAD 4-Hour Forex Chart

There really isn’t much to this trade idea other than the double top formation, which typically is a signal that buyers have lost the edge to sellers.  And we can see in the four hour forex chart above of EUR/CAD, the pair is now breaking below the “neckline,” which I define as the previous consolidate area between 1.5000 – 1.5250. Maybe we’ll see more sellers now that not only is a previous area of interest broken, but also a major psychological support level (1.5000).

I also like this position because of the interest rate differential in favor of the Canadian dollar, and the likelihood that oil may have found a temporary bottom. I don’t think that a rally is in order for the Loonie or oil, but I think there can’t be much more sellers around.  I could be wrong, but I’ll just have to wait and see. And finally, the data from Europe has been mostly negative lately, which could lead to another quantitative easing move from the ECB in March.

So, I’m shorting on this break and around the consolidation area, with my max stop just above the consolidation area. My max profit target is the previous swing low area last seen in December, which was also a big consolidation area during the Summer of 2014.  Here’s what I’m doing:

Short half position EUR/CAD at market (1.4925), stop at 1.5425, profit target at 1.4100
Short half position EUR/CAD at 1.5250, stop at 1.5425, profit target at 1.4100

Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Create your own ideas and don’t follow what I do. Risk Disclosure.

I’m only risking 1.00% of my account on this one, and with this trade structure, I have a potential reward-to-risk ratio of about 4.10:1. Of course, anything can happen in the forex markets, so if the story changes I’ll be sure to reassess and adjust quickly if necessary. Stay tuned by following me on Twitter and Facebook!

  • Marco

    Another reason ECB action in March?

    • Pipcrawler

      The data hasn’t been good in Europe recently. This may push the ECB to take further action, but of course we won’t know until we get there. Just gotta manage my trade to protect my profits ahead of it.

  • Harjot Gandhi

    Good luck but I don’t agree with your trade. My reasons:
    1. The PA is sitting at 61.8 retrace – so likely to bounce from here
    2. Oil hit a barrier last Friday and printed a PB on Daily TF

    • Pipcrawler

      Thanks for your analysis Harjot! Looks like the sellers have won out for now. Does this change your analysis a bit?

      • Harjot Gandhi

        Yes my bad – I read your trade wrong. You had posted the idea for Friday and I looked at it in the context of Monday PA.

  • Jonathan

    I have this pair as a 4hr Bullish Butterfly Harmonic Pattern. XA starting on Dec. 31, AB retrace of XA to 78.6, BC retrace of AB to 78.6/88.6, and CD extension of BC to 161.8 with overall CD extension of 1.5ish of XA. The completed pattern zone reversal is between 1.46600 to 1.45600. Just my thoughts, great site, thanks for info and comments, cheers.

    • Pipcrawler

      Thanks for sharing your analysis Jonathan! I don’t use Harmonic patterns to frame my trade decisions, but I’m sure it’ll help someone out there!

  • Jonathan

    Thanks for your response, and thank you for all the great ideas and analysis this site provides. Good luck, happy trading!

  • Marco

    You called it. Great trade! I’m at the opposite end of the ideal forex time slot. Anyway of getting your daily pick notification by email?

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