New Year Brings USD/CAD Test of 2011 Triangle Support

The USD/CAD is off to an interesting start in 2012, by testing 2011 support levels near 1.0070. The pair has been consolidating in a triangle pattern from the October 2011 high set at 1.0656. Our resistance line on our triangle can be found by connecting this point, with the November and December highs. Support is found by connecting the September 2011 low at .9734, with the October low of .9893.

Dropping to the 4Hour time frame on the USD/CAD, we can determine our plan of action for trading our triangle. Normally, triangle traders have two distinct methods of trading to choose from. First, traders may opt to buy a bounce off of support. This method would call for the use of an oscillator such as CCI. Traders should wait for a turn in price, and the indicator to cross back over -100 prior to entry.

Secondly, traders may select to trade a breakout by placing entry orders. This would require for traders to set an entry to sell underneath support levels. A breakout would confirm the end of our consolidating triangle pattern and the beginning of a new directional trend.

My preference is to buy a turn on the USD/CAD at support near 1.0090 by utilizing CCI. Stops should be placed under support at 1.0040. Limits should look for a minimum 100 pips, but may ultimately set sights on the upper trend line near 1.0330.

Alternative scenarios include price breaking under support. In this scenario, we should utilize a breakout method of execution.

Additional Resources

Trading Breakouts

Trading Triangles

Support & Resistance

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---Written by Walker England, Trading Instructor

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DailyFX provides forex news on the economic reports and political events that influence the currency market. Learn currency trading with a free practice account and charts from FXCM.