Analys från DailyFX
Popular AUD/CAD Pattern That May Not Work This Time
Talking Points:
- Weak Uptrend on AUD/CAD Daily Chart
- Trading Against a Head-and-Shoulders Pattern
- Key Support Zone for Buying AUD/CAD
Head-and-shoulders patterns tend to generate a lot of excitement among traders. However, there are a few factors that can cause these popular patterns to fail, especially if they are entered too quickly. AUDCAD is currently exhibiting one potential example of this situation.
As shown below, the rising wedge pattern on the AUDCAD daily chart signals a rather weak uptrend in the bigger picture, but it has not yet shown any of the usual wedge pattern breakdown signals. The most telling signal would be a quick move beyond the upper wedge resistance before breaking back in again swiftly. Since it has done no such thing, this pattern can be traded using traditional support and resistance principles instead.
Guest Commentary: Rising Wedge Pattern on AUD/CAD Daily Chart
The head-and-shoulders pattern on the below AUDCAD four-hour chart will become obvious once the neckline denoted by the black horizontal line has been drawn. However, less-experienced traders might easily miss the fact that this pattern will have to punch through at least three levels of rising support in order to achieve its goal. In addition, this goes against the dominant trend on the daily chart.
Guest Commentary: Head-and-Shoulders Pattern in AUD/CAD
This is not impossible, of course. However, a far more likely short-term development would be a bounce off one of these rising lines of support, which is why today’s trade is to the long side.
The hourly chart below clearly provides a reasonable support zone for initiating new longs. The exact zone comes in at 0.9849-0.9882.
Guest Commentary: Key Support Zone for Buying AUD/CAD
This risk zone is a mere 33 pips deep, as compared to the 60-100 pips that even a conservative move to retest the recent highs would supply.
Nonetheless, in order to achieve greater precision with this trade entry, the 15-minute time frame (chart not shown) is preferred. Viable triggers would include the usual suspects, including bullish reversal divergence, pin bars, and/or bullish engulfing patterns on the 15-minute chart.
Dropping down to the lower time frame should provide even narrower risk, however, traders should be willing to take two or three tries to get in on this move. Although this is essentially an intraday trade, part of the position can be scaled out and the remainder left to ride what could be a worthwhile move amid acceptable risk.
By Kaye Lee, private fund trader and head trader consultant, StraightTalkTrading.com
What’s inside:
- EURUSD broke the ‘neckline’ of a bearish ‘head-and-shoulders’ pattern, April trend-line
- Resistance in vicinity of 11825/80 likely to keep a lid on further strength
- Targeting the low to mid-11600s with more selling
Confidence is essential to successful trading, see this new guide – ’Building Confidence in Trading’.
Coming into last week we pointed out the likelihood of finally seeing a resolution of the range EURUSD had been stuck in for the past few weeks, and one of the outcomes we made note of as a possibility was for the triggering of a ’head-and-shoulders’ pattern. Indeed, we saw a break of the ’neckline’ along with a drop below the April trend-line. This led to decent selling before a minor bounce took shape during the latter part of last week.
Looking ahead to next week the euro is set up for further losses as the path of least resistance has turned lower. Looking to a capper on any further strength there is resistance in the 11825-11880 area (old support becomes new resistance). As long as the euro stays below this area a downward bias will remain firmly intact.
Looking lower towards support eyes will be on the August low at 11662 and the 2016 high of 11616, of which the latter just happens to align almost precisely with the measured move target of the ‘head-and-shoulders’ pattern (determined by subtracting the height of the pattern from the neckline).
Bottom line: Shorts look set to have the upperhand as a fresh month gets underway as long as the euro remains capped by resistance. On weakness, we’ll be watching how the euro responds to a drop into support levels.
For a longer-term outlook on EURUSD, check out the just released Q4 Forecast.
EURUSD: Daily
—Written by Paul Robinson, Market Analyst
You can receive Paul’s analysis directly via email bysigning up here.
You can follow Paul on Twitter at@PaulRobinonFX.
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
EURUSD: Retail trader data shows 37.3% of traders are net-long with the ratio of traders short to long at 1.68 to 1. In fact, traders have remained net-short since Apr 18 when EURUSD traded near 1.07831; price has moved 9.6% higher since then. The number of traders net-long is 15.4% lower than yesterday and 16.4% higher from last week, while the number of traders net-short is 0.4% higher than yesterday and 10.5% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests EURUSD prices may continue to rise. Positioning is more net-short than yesterday but less net-short from last week. The combination of current sentiment and recent changes gives us a further mixed EURUSD trading bias.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
Why and how do we use IG Client Sentiment in trading? See our guide and real-time data.
GBPUSD: Retail trader data shows 38.2% of traders are net-long with the ratio of traders short to long at 1.62 to 1. In fact, traders have remained net-short since Sep 05 when GBPUSD traded near 1.29615; price has moved 3.4% higher since then. The number of traders net-long is 0.1% higher than yesterday and 13.4% higher from last week, while the number of traders net-short is 10.6% lower than yesterday and 18.3% lower from last week.
We typically take a contrarian view to crowd sentiment, and the fact traders are net-short suggests GBPUSD prices may continue to rise. Yet traders are less net-short than yesterday and compared with last week. Recent changes in sentiment warn that the current GBPUSD price trend may soon reverse lower despite the fact traders remain net-short.
— Written by Christopher Vecchio, CFA, Senior Currency Strategist
To contact Christopher Vecchio, e-mail cvecchio@dailyfx.com
Follow him on Twitter at @CVecchioFX
To be added to Christopher’s e-mail distribution list, please fill out this form
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