Bearish Dragon pattern can pick reversals and trendline breakouts effectively
The bearish dragon that we have been waiting for so long, may have arrived at a fundamentally conflicting situation.
With the USD interest rate increment announced only few trading days ago, in a fundamental point of view, there is more upside to the USDCAD. But this is the beauty pure technical trading. I personally don’t trade fundamentals. The markets move in waves and many a times we have seen technical projections being manifested through some sort of fundamental force. So with this beautiful bearish dragon in place, there is no way we can be pessimistic about some interest rate hikes that was announced days ago. Having said that, trading is a game of probability. So we need some more evidence to support a bearish expectancy. Making sure that the probability is on our side is important.
In order to build a case for the short we can see that weekly chart is almost at an ABCD completion zone. So we know a downward move is in the making. But there may be yet another upswing left in the move, which may be a stop run as well as a perfect ABCD completion in weekly. Since its a weekly ABCD the reversal zone is few hundred pips wide. The reason we scalpers have to understand the higher time frames, even as big as weekly and monthly is that we need to be our scalp trades to be in harmony with trends and flats in higher timeframes. Failing which may result in unexpected outcomes, losses and frustration.
Given the festive and holiday seasons and low liquidity market conditions, its actually a good idea to refrain from taking large positions. None the less, it seems quite a nice trading opportunity to start 2016 with a home run. My approach is to scalp this pair while understanding key price zones and levels.
Heres some more proof to expect a possible downward move
Bearish dragon is a unique harmonic pattern. Because its a pattern that signals a trendline breakout, while most of other harmonic patterns signal a bounce off trendlines (if there were any at reversal price point.) Bearish dragon pattern visible on the above chart clearly identifies a violation of a month long trendline to the down side. Technically we can expect the price to return to the weekly trendline support. Its certain that price will one way or the other will reverse to test the very long term trendline support. Its just a matter of when.
If you agree with this trading idea, consider sharing with your friends and colleagues. Whats your idea about USDCAD? Do you think a downward move is in the cards or perhaps another push to the upside into 1.4000’s? Share you agreements and disagreements, I would love to hear from you.