This was a developing story
- Using price action, USD/CAD had signalled a trade setup.
- In a top-down analysis, it is demonstrated how to use market structure to gauge for high probability setups.
- It is also demonstrated how to manage risk and price action during the trade.
USD/CAD has found demand on a monthly support area which gives rise to an opportunity to target resistance as the five-month consecutive waterfall trend starts to correct.
The following flow of charts illustrates how the trade setup has been determined and why it offers a high probability opportunity for a favourable 1:3 risk to reward ratio.
Starting with the monthly chart, we can see that the price has indeed been rejected month after month and has picked up a bid at a strong level of support.
Monthly chart
-637353783189543147.png)
Weekly chart
-637353784943347230.png)
From a weekly perspective, the 1.34 area is likely to be a keen area of supply for which to target, but the highest probability trade on the table, for now, is found on the daily setup.
Daily chart
-637353775346878161.png)
As illustrated, the price is correcting Wave 1 which offers the opportunity to target the 1.33 psychological level of Wave 3 as the price retraces to support structure.
4HR buy limit order
-637353775592371180.png)
As the moves in to test the support structure, a buy limit will trigger the entry for a 1-3 risk to reward ratio.
The price action will be monitored from a 4HR timeline from entry to exit.
The positing should be managed with a stop loss that is moved to breakeven as soon as there is a new support structure formed above the entry.
Update 06.20: Buy Order filled
-637354023386618929.png)
The position should now be monitored for new support structure above the entry level in order to move stop loss to breakeven.
Update: Monitoring for breakeven structure
-637354447165721134.png)
The price is moving in the right direction and away from the entry to the point that we can now start to think about moving the stop loss to breakeven.
This will be achieved if the price closes above resistance and the prior candle's high.
Week closing update
Still monitoring for breakeven:
-637354582464589311.png)
Update: Target reduced to breakeven
-637357379385246607.png)
The price has dropped sharply below entry into drawdown.
It is true that it has not broken horizontal support, yet, but given it has broken below the rising trendline support, the risk is that on a retest it will hold as a counter trendline resistance.
The best thing to do is to set the target at breakeven.
If the price continues to fall, the position will incur a loss.
If the breakeven target is achieved, then the price action will continue to be monitored to see if there is another opportunity to get long again.
Update: The breakeven target was achieved
-637357781525028634.png)
This story will continue in another article IF price action warrants another long entry.
If so, the article will be linked here.
Update: Position established new entry for same target
-637357989252359239.png)
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