USDCAD: a Bullish Bat in a Bullish Price Channel
This pair has been ranging in a 145 pip wide bullish parallel channel on the 30M for the last 9 days. Both the upper and the lower channel line have been tested 4 times and have proven their strength. It pushed up 100 pips last Friday, on the back of downbeat Canadian retail sales data (the largest one-month decline since April 2010) and a favourable US manufacturing pmi. The pair finally printed a net gain for the whole day. Chances are that price will slowly find its way towards the lower channel line, at which point we would have a completed bullish Bat pattern.
PA so far only traveled 20% from C towards the potential reversal zone and has yet to pass the B point, so we are nowhere near completion but I like to look ahead and be prepared just in case, since I can only profit from that which I anticipate. I am not making the case here that completion will happen; I am merely saying that if it happens, I will buy this pair upon reversal. So this trade candidate goes on my watch list for next week.
When defining the PRZ for a Bat pattern, we look at the projection of three harmonic levels. I: the 886 retracement of XA, II: an extended AB = CD pattern (in this case 1618 AB = CD) and III: a BC expansion (in this case 2240 BC). This defines a very tight zone, 7 pips wide, represented by the orange lines in the chart. The confluence with the lower trend line of the channel increases the chance of reversal upon completion of the harmonic price pattern.
Should the price drop enough to eventually test the PRZ, stabilise and reverse convincingly, I would enter long, basically buying the low in a bullish channel. SL goes 10 pips behind X. TP1 = 382 retracement of AD and TP2 = 618 retracement of AD.
There are 80 pips to be made (if this pair follows the script) and the trade has a reward – risk ratio of 2.9!
UPDATE: Price never completed the pattern, so there was no entry signal for this trade. No problem, nothing was risked and nothing was lost. On to the next trade!
PA so far only traveled 20% from C towards the potential reversal zone and has yet to pass the B point, so we are nowhere near completion but I like to look ahead and be prepared just in case, since I can only profit from that which I anticipate. I am not making the case here that completion will happen; I am merely saying that if it happens, I will buy this pair upon reversal. So this trade candidate goes on my watch list for next week.
When defining the PRZ for a Bat pattern, we look at the projection of three harmonic levels. I: the 886 retracement of XA, II: an extended AB = CD pattern (in this case 1618 AB = CD) and III: a BC expansion (in this case 2240 BC). This defines a very tight zone, 7 pips wide, represented by the orange lines in the chart. The confluence with the lower trend line of the channel increases the chance of reversal upon completion of the harmonic price pattern.
Should the price drop enough to eventually test the PRZ, stabilise and reverse convincingly, I would enter long, basically buying the low in a bullish channel. SL goes 10 pips behind X. TP1 = 382 retracement of AD and TP2 = 618 retracement of AD.
There are 80 pips to be made (if this pair follows the script) and the trade has a reward – risk ratio of 2.9!
UPDATE: Price never completed the pattern, so there was no entry signal for this trade. No problem, nothing was risked and nothing was lost. On to the next trade!
You don´t need to be a weatherman to know which way the wind blows - B. Dylan