USD/CAD Identifying the Trend
Trend identification, is the primary step for directional traders upon viewing any chart. Today we will begin our analysis of a USD/CAD 8H chart. We can see that the pair created a low on July 24th at .9406. The pair continued higher until December 4th which posted a price at 1.0657. Twenty-five days have passed since this high has been created. The key part of an uptrend is the creation of fresh highs, many traders are left asking, “Where is the trend?” The answer can be found by blocking your chart off into smaller segments.
One method of trend identification I prefer utilizes a 30m chart. Each block can be drawn by marking off Sundays and Wednesdays using the vertical line tool inside of Marketscope 2.0. Once your chart is blocked, it is key to begin using price action to looking for relative lows and highs. An uptrend should consistently be making higher highs, and higher lows. Conversely, a downtrend should create lower lows and highs.
My preference is to trade the USD/CAD only when two blocks of market data gives a clear market bias. Meaning in an uptrend, there should be one week of trading data, pointing to the up or downside. At the present the USD/CAD is concluding the first block of a down movement. Using the steps above, we should wait for Sundays open prior to considering short positions.
Trading using the blocking method has the ability to help us avoid and manage potentially damaging short term market shifts. Patience is important, but once a trend is found we can use our market bias to trade the method of our choosing.
---Written by Walker England, Trading Instructor
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.