JasperForex
Short

USDCAD: a Reversal Play on the Loonie (2618 trade)

FX:USDCAD   U.S. Dollar/Canadian Dollar
Last week the Greenback opened bullish on the back of the prior Fridays better-than-expected core cpi             readings and strengthened throughout the week. On Tuesday it made strong gains as core durable goods, consumer confidence and new home sales all beat expectations. These positive readings reinforced dollar strength. Wednesday´s BoC             rate decision and statement was a non-event; they repeated the Canadian economy is on track and the monetary policy remains suitable for the time being. Regardless, speculation remains rates will be cut again this year. On Friday US gdp came out better than expected but the Canadian gdp was very weak (it fell the most since the 2009 recession) so we saw the Loonie shoot up aggressively, though it failed to make a higher high and gave back most of its gains. This trade candidate is the follow up to “A Continuation Play on the Loonie”, linked under Related Ideas.

In total this pair rallied 285 pips after breaking out of a bullish rectangle (see the related idea), but it now looks fatigued (after 2 weeks of upwards price action) and we currently have a basic reversal pattern called a double top on the 4H. Price tested and respected a key bearish trend line when creating this pattern. There are 4 different ways to trade a double top and I am describing the most conservative scenario here. It is depended on a number of steps happening before entering the trade and as such its an “if… then… scenario”. A double top is a double top if the wick of the second meets at least the candle close of the first, while the candle close of the second does not exceed the wick of the first. In other words, price tried to make a higher high, but failed. This retest of resistance with less strength also follows from the regular bearish RSI divergence at the second top. The oscillator was overbought on Wednesday and steadily came off that level while making higher highs, indicating underlying weakness.

In the conservative scenario, known as the 2618 trade, we need the following steps to occur before entering:
  • price breaks below and closes below the neckline;
  • price retraces back up, until 618 retracement of the prior leg down;
  • price stalls, stops and reverses at this retracement level.
In that case, SL goes above the tops. TP1 = structure level where the retracement started, TP2 = 1272 extension of prior leg down (which has confluence with the top of the bullish rectangle of the prior idea). We would retrace the complete bullish leg after the rectangle breakout. When TP1 is hit I would take profit on half of my position and roll my stop loss to breakeven, enjoying a risk free trade hunting for TP2.

There are 195 pips to be made (if this pair follows all the steps in the script) and the trade has a reward – risk ratio of 1.9!
You don´t need to be a weatherman to know which way the wind blows - B. Dylan
Tony1200
2 years ago
Great stuff!! I'm already short!! Good luck!
+1 Reply
JasperForex PRO Tony1200
2 years ago
Already trading the double top? Thats an aggressive entry, good luck!
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Tony1200 JasperForex
2 years ago
Yup.. My original entry was going to be 1.2390.... However I was feeling a bit brave and shorted Thursday at the close... After seeing that pinbar on the daily!!! Got a little worried Friday but seems to be following script!!
+1 Reply
JasperForex PRO Tony1200
2 years ago
Yes it tried to print a higher high on Friday but failed, I can imagine you got worried there haha but it gave back its gains. Lets hope it follows this script from now on!
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moneymaking
2 years ago
Hey Jasper, Great analysis as always, Love the 2618 trade setup, I'll take it anytime and anywhere, LOL :)
+1 Reply
JasperForex PRO moneymaking
2 years ago
Thanks for the kind words, lets make some pips the coming week!
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Neel_K PRO
2 years ago
More people see it.. the more self fulfilling it becomes :)
USDCAD -Short Setup
+1 Reply
JasperForex PRO Neel_K
2 years ago
Yes, we agree its a short, though your rationale for the trade is different and your profit targets are way more ambitious. You put your stop so high, why not above the last swing high (to improve the reward - risk)?
+1 Reply
moneymaking JasperForex
2 years ago
I think this trade is suitable for big players, who got bigger accounts. Too risky for a retail trader :)
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Neel_K PRO moneymaking
2 years ago
or smaller position sizes. !
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Neel_K PRO Neel_K
2 years ago
I just trade smaller position sizes, on loner timeframes. Unlike he guy who was 30 lots short before friday news .. I cannot for price to go 90 pips against me with those sizes.
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moneymaking Neel_K
2 years ago
It really depends on the strategy that you are trading. If you are trading micro lots on lower time frame and still making good amount of money, then thumbs up to you. All you gotta do is just keep on following your strategy :)
+1 Reply
JasperForex PRO moneymaking
2 years ago
@moneymaking Exactly. Money management and position sizing are part of a trading plan and thats unique for every trader.
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JasperForex PRO Neel_K
2 years ago
@Neel_K Yes I remember him, he traded INTO the high impact news event with 30 lots and price went aggressively against him. I prefer a more conservative approach :-)
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moneymaking Neel_K
2 years ago
30 lots damn, that is a huge risk. He must have had a bigger account :)
+1 Reply
moneymaking Neel_K
2 years ago
That's one way to go about it. If trading micro lots then risking -$40 to make +$50. I think with 500 pips of potential profit, it's better to make most out of it without taking to much loss :)
+1 Reply
JasperForex PRO Neel_K
2 years ago
@Neel_K True if I were to take your trade, the position size would be very small given my fixed fractional trade risk and account size. I don't use stops that are so big (not criticising, just pointing out a difference in approach).
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Neel_K PRO JasperForex
2 years ago
As usual, makes perfect sense. ! :) And is all probability you trade is likely to gets is targets thank of my target 2's. Pice may well just rebound off your target levels.. to go back into the channel. Hence it is good to get the higher TF bias and setups and play lower timeframes in context.
+1 Reply
JasperForex PRO Neel_K
2 years ago
Absolutely. Your higher TF trade setup gives me more confidence in mine, so thanks for posting it. We shall see what Mr. Market has in store for us.
+1 Reply
Neel_K PRO JasperForex
2 years ago
I only came across this before thursday night..and PA hadn't given me any entry signal on lower timeframe to keep the risk low. After friday's close , your trade setup is perfect entry on lower time frame.
+1 Reply
moneymaking
2 years ago
This is completely of topic, but this is a must read : https://ca.finance.yahoo.com/news/russian-billionaires-hit-hard-oils-100421549.html
Don't these billionaires have any emotion.
Sorry for going of topic Jasper :)
+1 Reply
JasperForex PRO moneymaking
2 years ago
Well oil prices do impact Canada's economy so its not entirely off topic lol
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Piphunters
2 years ago
Nice charting!
Being conservative we are looking to short this one as soon as we get an entry signal (on the 1H chart) as well
USDCAD daily trend change!

Keep it up and,
may pips be with you!
+1 Reply
JasperForex PRO Piphunters
2 years ago
I see you are bearish and looking for an entry to short as well. Thanks for sharing your chart and may we both make some pips on this pair :)
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forexbaba
2 years ago
Excellent analysis,
+1 Reply
JasperForex PRO forexbaba
2 years ago
Thank you for saying so.
Reply
Sam.Distraction
2 years ago
Nice Chart Jasper in wabbit style :). I also got some reasons to short UC, lets see how it plays.
Trying the new Trading View Tool "The Arc" on Loonie
+1 Reply
JasperForex PRO Sam.Distraction
2 years ago
Thanks, I see you found additional reasons to go short :)
Reply
Sam.Distraction JasperForex
2 years ago
Yeah its good to get more reasons to get more confidence in your trade. :)
+1 Reply
moneymaking
2 years ago
Double top invalid now I believe :(
+1 Reply
JasperForex PRO moneymaking
2 years ago
Yes, a higher high is on place now. The dollar gained aggressively when several data points came out better than expected. The if... then... scenario (as described above) did not play out, no trade was entered and nothing was lost. On to the next trade!
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Piphunters
2 years ago
Entry signal never came and trade was never taken :), we will wait for retracement down to daily support and look for new LONGS, but aggressive traders can be looking for new high low on lower time frames (1H preferably).
I guess most experienced trader did not take this trade, besides maybe a small aggressive position
+2 Reply
moneymaking Piphunters
2 years ago
Agree. It's always good to be on the conservative side, if you want to be in this business for the long run :)
+1 Reply
JasperForex PRO Piphunters
2 years ago
The irony is, that today exactly TP2 was hit of the trade idea that preceded this one.
USDCAD: a Continuation Play on the Loonie
+1 Reply
moneymaking JasperForex
2 years ago
That sounds good :)
Reply
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