For today’s pick, I decided to go with a potential support break forex setup on GBP/CAD, which is already in a strong downtrend.
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GBP/CAD has been on a heck of a run lower in 2016, likely on a bounce in oil prices and risk sentiment (thanks to easy money everywhere from central banks) and on the possibility of the Brexit. We saw the market start the year around the 2.0800 handle, and now trading a remarkable 2,300 pips lower to 1.8500. The pair seems to have found strong support around current levels, but with lower “highs” on the chart, I think sellers will continue to be in control until that falling trendline above is broken.
With a descending triangle forming and a downside break a likely result, I’ve decided to already start building a short position in the pair in anticipation. I’m going with a nibbler position for now, and if the pair does bounce back higher, I think that falling trendline and minor area of interest around 1.8800 will likely draw seller interest. My stop is tight to just above the falling trendline and a weekly ATR away from current levels, with my target way down at strong support area last seen back at the end of 2014 to give me a really attractive potential return-on-risk. Here’s what I am doing:
Short half position GBP/CAD at market (1.8505), max stop at 1.8875, max profit target at 1.7550
Short half position GBP/CAD at 1.8750, max stop at 1.8875, max profit target at 1.7550
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 6.09:1 if both positions are triggered. 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!