Talking Points:
- Consolidation Pattern on GBP/CAD Daily Chart
- Favorable Risk/Reward Profile
- Gartley Pattern Helps Validate the Trade
The usual procedure for trading trends is to wait for a legitimate pullback in an uptrend or downtrend, and there is a definite uptrend on the below daily chart of GBPCAD that is only just beginning to pull back.
Guest Commentary: Pullback in an Overall GBP/CAD Uptrend
There are pros and cons to taking this trade when viewed from the higher time frames. The definite con is that price has largely moved sideways and hasn’t really given sufficient room for a trade, which suggests that in order to make for suitable risk/reward profile, a much lower time frame is needed.
However, this recent consolidation suggests that a battle between bulls and bears is happening on the lower time frames, and that may well provide enough of a range to justify a low-risk trade.
The four-hour chart below provides a better picture of the range, which appears to be steady and tradable. Even if price only rises to the top of the range, there are approximately 195 pips between the current price and overhead resistance.
Guest Commentary: 4-Hour Range in GBP/CAD
On the downside, the support region is about 60 pips wide. This makes for attractive risk/reward, especially when considering that the uptrend on the higher time frames could resume as well.
The hourly chart below shows a harmonic pattern that lends credence to this trade, the Gartley pattern. (The rules for trading Gartley patterns were described in a previous article.)
See also: A Credible Gartley Pattern in EUR/GBP
Although price has come very close to touching the 78.6% retracement level, it’s important to be strict with regard to support levels. This retracement level will only become tradable once price has actually touched it. Thus, the support zone emerges as 1.7768-1.7826.
Guest Commentary: Gartley Pattern on GBP/CAD Hourly Chart
Nonetheless, some traders may choose to be aggressive and use pin bars, bullish engulfing patterns, and/or bullish reversal divergence on the 15-minute chart as trade triggers.
As always, two or three tries may be needed to get in on this trend. The decision to wait for the support zone to be validated may result in missing this trade, but experience suggests this is unlikely.
An examination of the 61.8% level shows that it was slightly breached, and often, this also means that a breach of the 78.6% level will occur before price turns around.
By Kaye Lee, private fund trader and head trader consultant, StraightTalkTrading.com