Today I want to use a trade that I just entered as an example to show you how I study price action and how I use price swings to get better entry level.
Take a look at the USDCAD chart above. On this daily time frame chart you can see that in early 2016, USDCAD pair topped off and started a heavy move down up until May 2016. Since May of 2016 price has been in a pullback phase where all the short sellers who were shorting are now taking profits. Which is making the price action to pullback .
If you were to draw a fibonacci retracement from the top from Jan 21st 2016 to the bottom on May 3rd of 2016, you will see that price has retraced 50%. This retracement is has created a price channel to the upside and price has recently (last week) printed two bearish candlesticks at the top of the channel. Though not shown in the chart above RSI is confirming the downside potential with divergence. Another key point to see when you look at this chart from a long term perspective is that recent US elections news (Trump Winning) has done nothing to change the overall technical picture.
The snap below will show you my entry and my stop loss points.
As for profit targets , im looking for price to come down to the 50 ema. That said keep in mind that if price printer a strong bullish candle i probably will end up taking partial profits if not all of it.
Whats important is that you understand the overall trend of the price.
In this example :
Price was in a up trend up to Jan of 2016.
Following Jan 2016 price made a significant down move up until May of 2016
During this move to the down side price broke and closed below a key structure support level of $1.2800. This tells me that BEARISH strength is strong.
Typically when breaks below a key structure level price trends to retrace
From May 2016 to now price has been on this retracement.
So why should we Short this pair now ?
Price is now touching the upper channel
Which touching the upper trendline, price has been printing bearish candlesticks. An engulfing and a long upper shadow candle.
These candlesticks gives us a way to calculate our risk and a high probability that price would go down.
Due to all these reasons I’m currently SHORT USDCAD. However all these reasons wouldn’t make this a bulletproof ,SURE trade. What you need to understand is that trading is a probability game. This trade has a higher probability of going in our favor due to all these reasons. But there is still that chance of this trade not working out for us.
If this trade were to go against us it should not make us doubt our strategy. Why?, because as an individual who wants to be a successful trader you should have back tested your strategy in the first place. This Would show that over a larger set up trades your strategy is profitable.
Hope you found my analysis educational. If so please subscribe to get notified on similar postings and also receive my weekly watchlist.