Our regular followers know that I am a price action trader/analyst and tend to build my ideas around what price is doing – or in some cases isn’t doing – either after some key fundamental event or following the formation of a particular price pattern. Now here is a perfect example of exactly what I am talking about. The USD/CAD has created several bearish-looking price candles on its daily chart below the 200-day moving average over the past few days. So, prior to today’s session, it would have been reasonable to expect further weakness in the exchange rate, particularly after support in the 1.3255 area gave way. Yet, after a brief break lower, price has turned positive on the day and broken not only back above the 1.3255 level, which should have turned into resistance, but also above yesterday’s high. It is therefore refusing to break lower. What is this telling you? Well, it is telling me that the USD/CAD is strong and that the sellers may have been trapped. So, I immediately ask myself this question: if the sellers are truly trapped, where are their stops likely to be resting? A logical area would be above those bearish looking candle and the 200-day moving average circa 1.3310. Now THIS is exactly where I would expect price to move to, if my thesis is correct. But this could turn out to be a more significant reversal and we could see an eventual move towards the levels shown on the chart. However, I would be quick to drop this bullish view in the event price turns lower and creates a new low on the day today. If that happens, just ignore my analysis and carry on with your life! Jokes aside, there are a lot of lessons you can take away from this. So, even if the analysis becomes invalid, you will have hopefully learned an alternative way of looking at price action.
Source: eSignal and City Index.
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