The Top Trading Opportunity Of The Month & Future Opportunities!
- Wian Stipp
- May 29, 2017
- 4 min read
If you asked which Forex pair has been the easiest to read and trade for the past month, I would undoubtedly say that it is USDCAD. In this week's analysis, I will explain how I managed to bank a large profit and how I am going to continue trading it going into the month of June. We will take a bird's eye view, then look at technicals and fundamentals to give us a high probability / high reward trading opportunities.
My Best Trade Of The Year (so far)
As you can see on the daily chart of USDCAD above, we have just put in an ABC correction, ending the larger correction on the weekly time frame. If this count is correct, then this indicates an impulsive down move to follow. This has been happening for the past month, since it found the high at 1.37934.
Why Did USDCAD Reverse?
Now i'm going to drop down to the 4 hour chart to show why I was so confident that C wave up was about to terminate in the red box on the chart above.
As shown on the 4 hour chart, the fifth wave formed an ending diagonal. We know that these patterns only form in ending waves, indicating a reversal of a trend. Giving me confidence was the amount of divergence on both RSI and the stochastics indicators. This suggests that the trend was becoming very weak and it was time to look to sell. Ending diagonals are often followed by a sharp counter-trend move. This is exactly what took place on USDCAD!
How I Got Two Perfect Entries
On the one hour chart, I looked for selling opportunities. After the 5 wave impulse down, I was initially looking for a zigzag correction to sell in to. Therefore, after the first three waves up, I sold at market in the first grey box with my stop loss above the high of the ending diagonal. From my first sell order, the market put another simple 3 waves down. At this point, USDCAD was either going to put in a flat or triangle. Either way, my first entry was still valid and I was happy to hold the position. I was also looking to add some more to the trade and after I counted 5 waves up, I initiated another sell at market with stop-loss above the high of the ending diagonal again. From there, USDCAD started to move down as anticipated. I quickly moved my stop-loss to break-even to all eliminate risk.
The Result
From there, USDCAD absolutely melted! From the high, the market dropped 400 pips and I managed to profit from 335 of those on average with my two positions. I took profit after I suspected that the third wave had ended. Each position had around a RR ratio of 4.2 : 1.
This means this trade alone put 8.4% into my account, since I was risking only 1% per position.
Don't Miss The Next Opportunity!
Now, i'm not even near done profiting off this pair. I'm currently (29/05/17) looking to re-enter short to catch the continuation move downwards. Here's why I believe it hasn't finished falling.
US Dollar Index
The US Dollar Index has possibly put in a very important high, ending the upward move from 2011. If so, we could see years of bearish movement on the DXY. This is important for understanding why shorting USDCAD is working so well.
The chart above and below was provided by Senex FX (click on his name to go to his YouTube). Senex is a fellow Elliottician & technical analyst like myself. Please visit his YouTube page as he uploads multiple videos a week reviewing the Forex market.
On this weekly chart, it looks like 5 waves up has completed, which would mean the overall correction is finished.
Zooming into the daily chart, you can see just how weak the USD has been looking since the start of the year. However, we can't forget that impulse waves need correcting and seeing a bounce in the next few days or weeks is expected. This lines up with the daily sentiment of the DXY, which is floating around 9-14% at the time of writing this analysis. At extreme values like this, there is often a bounce of some kind. This would line up well with a correction for wave 2 on USDCAD.
The Next Opportunity
So from here, I see two possible scenarios for the bearish view. Both give great trading opportunities.
Scenario One:
This is my preferred view for now because corrections are more proportional to their impulses than in scenario two. Waves in scenario one also subdivide much better and the overall count isn't forced. If this is correct, then we should see a move a bit higher before a drop below wave iii. This would be good to sell in to.
Scenario Two:
With scenario two, I've assumed that the (v) waves down has completed and we are due a larger correction into the red box. This would give me a good sell from there.
Conclusion
Now these counts could all be completely wrong and we could see an impulse up that breaks the high, but that doesn't matter because my job as a trader is to look for high probability / high reward opportunities and find entries into them. I've already profited over 8% from this pair this month and losing 1% because these counts are incorrect would not be the end of the world.
As traders we don't try to predict the future, we just use probabilities to our advantage; that is our edge. Stay humble and never think you're a super trader because you get a huge winner. Chances are you will get burned if you do.
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