"Classic" Long Set-up in EUR/CAD
- Pullback in Overall EUR/CAD Uptrend
- Key Support Zone for Initiating New Longs
- The Ideal Time Frame for Taking This Trade
With last week's two star trades, the first in GBPJPY, which is now more than 400 pips into profit, and the second in EURGBP, which is running with a 60-pip profit on tiny initial risk, now well on their way, it will be interesting to see if the winning streak continues into this week, possibly signalling a return to a higher-probability trading environment.
See previous trades:
- Countertrend GBP/JPY Set-up That’s Too Tempting to Ignore
- A EUR/GBP Short That Requires Patience and Precision
Today's trade is a textbook set-up in EURCAD that involves buying a pullback in an overall uptrend. This trend is clear on both the weekly and below daily chart, but it has the drawback of potentially having put in a blow-off top.
Nonetheless, it is far wiser to trade in the direction of the overall trend, and thus, all that remains is to find a logical zone of support from which to initiate this trade.
The risk zone can be found on the below four-hour chart, although it is admittedly a little higher than expected. A nearby pin bar that was formed on the way up reveals a hidden level of support, and price has already begun to test this level. The support zone then extends down to the top of the previous major move up.
Guest Commentary: Key Support Zone for EUR/CAD
Of course, this zone also includes the rising level of support. It is 79 pips deep, which is small compared to the overall potential of this trend trade. Even a move back to the top would contain at least 180 pips, and if it made a new high, there would be much more.
To gain precision, however, it is preferable to take an entry on the hourly chart (see below), which may afford for a smaller stop loss. The trigger for this trade could be bullish reversal divergence, a pin bar, or a bullish engulfing pattern on the hourly chart.
Guest Commentary: The Ideal Time Frame for Trading EUR/CAD
The hourly chart also sports an eight-wave Elliott pattern which may be completing a “c” wave, possibly indicating higher prices in the near future. Price has already begun to react with the support zone, having just grazed it, but it will require the close of the hour in order for proper judgment to be made as to whether this trade has officially triggered.
As always, two or three tries may be required in order to get in on this trade, but each try will probably have less than 25 pips of risk, and thus, that aspect of the trade would be well under control and in fact advantageous should the trade go quickly.
By Kaye Lee, private fund trader and head trader consultant, StraightTalkTrading.com
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.