Trade Example – AUD/CAD

Filed under: Learn Forex Trading |

I would today like to take you through a nice trade setup that we missed last week on the AUD/CAD forex currency pair, which is the lesser popular pair for the Australian dollar and the Canadian dollar.

 

Figure 1.

To begin with, we have to assess the broader trend. Take a look at Figure 1, which shows the daily chart for the AUD/CAD pair. What we can see here is that there has been a change of market sentiment in recent weeks, with the 8-day exponential moving average crossing below the 21-day exponential moving average. We have also had six consecutive bearish candles, which shows a good deal of momentum to the downside. In this kind of situation, we should only really be taking short trades and trying to hop onto this momentum during any minor retracement to value areas.

 

Figure 2.

If you now look at Figure 2, you will see the 1-hour chart for the AUD/CAD pair. What you will see here is that the 150-hour EMA is crossed below the 365-hour EMA, confirming this bearish momentum. I have also drawn in a horizontal line to mark a significant area of support/resistance. This area first acted as resistance but then, after a change of polarity, became a possible support area. Price then formed a nice bearish engulfing pattern right at this area, which would have been a good place to put an order in at the break of the bearish candle, with a stop loss just a few pips above the high of the move and a target of two and half times out risk. This candle also happened to be bouncing off the 150-hour EMA, which shows a very powerful area of confluence.

 

Figure 3.

Figure 3 shows that this order would have been filled and price subsequently moved nicely downwards. Our target would have been easily met for a 2.5% rise on our bank. This is yet another great example of the power of price action trading. More tomorrow…

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