Technical Long on USD/CAD

Forex Trade Idea: 2014-11-20

I’m laying out orders to go long a small position in USD/CAD, mainly on the trend higher and the pair hitting strong arguments for technical support.

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

USD/CAD 4 Hour Forex Chart

USD/CAD 4 Hour Forex Chart

Looking at the four hour chart above on USD/CAD, it’s pretty easy to see the market grinding higher with regular pullbacks that have been opportunities for bulls to buy more. We’re currently in the middle of one of those dips, which may be coming to an end as the market is testing a few arguments for potential support:

  1. Rising trendline support
  2. Dynamic support at the 200 moving average
  3. Support at Fibonacci retracement levels

So, we can potentially be seeing buyers already jumping in to support the uptrend, but I’m not one of those forex traders because of tomorrow’s Canadian CPI report. The last two reads on consumer inflation have been better than expected and the Loonie did rally on those releases.

Of course, I don’t know what the number will be tomorrow, which is why my entry framework will be on a break above the falling channel rather than trying to get in on a pullback or going in at market. My stop will be a wide one (more than one weekly ATR), and my initial target will be a level that reacted well to the market through out the late 2000’s.  Here’s what I’m doing:

Long full position on USD/CAD at 1.1400, max stop at 1.1200, initial target at 1.1700

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 1.5:1. But with the strength we’re seeing in the Greenback lately, I may let this ride all the way up to the 1.3000 (March 2009 highs) if the momentum continues.  That’s a max reward-to-risk of 8:1.  Wouldn’t that be nice.

Of course, if the Loonie does rally, I will plan out a potential long position on the further pullback, but whatever happens I’ll be quick to re-assess and adjust if necessary.  Stay tuned by following me on Twitter and Facebook!