personally consider a trend line that has had 3 prior touches to be extremely significant.
So what should we be looking for if we are to expect a bounce?
Well, quite simply, a reversal candle.
I personally prefer the more aggressive type reversal candlestick patterns such as the engulfing types, but other notables would include inverted hammers or dojis.
What if we have a break?
If we have a successful break we should see the USDCAD close by today (1700 NY EST) below the support level of 1.2050.
To confirm the break we would need two things to occur:
- A breakout type candle
- Two consecutive closes below the trend line
Once we have this we have a confirmed break.
So how am I be viewing this?
One thing I like about the support trend line is the lack of wicks piercing the trend line. See for yourself (click on image to enlarge):
And due to the lack of wicks I wouldn’t hesistate in placing a stop entry order beneath the trend line at around 1.2035.
If I were playing it extremely safe I would place my initial stop at the previous high of 1.2430, but considering that having a 400 pip stop isn’t my style I would reduce it to the high of today (or the day of when the stock breaks) - this will reduce my initial stop loss point to around 70-80 pips.
Anyway, just thinking out aloud. I will see how the USDCAD travels later this morning and determine whether or not such a strategy will be a viable one.
Keep an eye on it.
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