It’s the start of the week and the start of a new series of blog posts. From now on, I am going to be writing trade breakdowns for you based around key trades I take in the financial markets. I will go through every step of the analysis and how and why I entered the position. The posts will be very detailed and contain multiple chart images to show you the multiple timeframe analysis and my thought process.
This first trade breakdown is centred around my current long positions on the USD/CAD FX currency pair. This currency pairing has been very good to me this year providing a number of highly successful trade entries both long and short. I believe the reason for this is because if you are patient enough, USDCAD almost always respects certain key price zones and Fibonacci Retracement levels. If you wait for price to reach zones where multiple levels overlap then you end up getting very high probability and successful trade entries.
As it stands, I currently have 2 positions on the USDCAD currency pair both of which are long. The first position I have been holding since the beginning of the month and is free of any exposure so I am more than happy to hold it. The long position also benefits from a small amount of positive carry due to the positive interest rate differential between the US dollar and the Canadian dollar. In simple terms… I am paid daily to hold this position.
You can track both trades on my Trading View profile by clicking here.
Position 1 – Long USDCAD entered 01/03/2019 @ 1.31380
- Price resting at the weekly bullish trendline.
- Weekly higher low to form at the Fibonacci 0.618 retracement level.
- 2 consecutive higher lows on the 4hr timeframe.
- Entry on the 3rd higher low which coincided with a 4hr bullish trendline and Fibonacci 0.618 retracement level.
The 3 main timeframe charts I used for the first USDCAD long entry are shown above. The 4hr chart is specifically cut to the entry candle to show the accuracy of the lower time Fibonacci retracement levels.
The process of my analysis that lead to this trade entry is fairly simple but methodical and that is the key to finding and entering high probably positions. Firstly I looked at the weekly chart and could see that price was forming a clear bullish channel with higher lows and highs and the bottom trendline holding strong. This meant my higher timeframe (HTF) bias was always for long positions only.
Next up, I looked at the daily chart to see if any highs or lows on this timeframe could provide a more accurate and higher Reward:Risk ratio entry for a long position. It is perfectly acceptable and possible to enter trades based solely on the weekly timeframe but they are not accurate enough for me and I prefer to go to the lower timeframes to get pinpoint position entries. The daily timeframe chart showed higher lows as expected and price forming a 3rd higher low (3rd yellow circle) at the weekly bullish trendline. I was ignoring the daily timeframe lower highs at this point because I had the higher timeframe bullish bias from the weekly chart. This 3rd daily higher low being formed was a very good place to enter a swing trade as you can see there are one or two wicks rejecting the weekly trendline zone.
For the final, perfect, highest Reward:Risk ratio entry I went down to the 4hr timeframe chart. I placed another Fibonacci Retracement level on the chart from the previous swing low to swing high on the 4hr chart and a simple trendline across the higher lows. At this moment in time I then saw we had; 3 weekly higher lows, 3 daily higher lows and now a 4hr higher low forming on the USDCAD currency pair. I had my desired long position entry at the intersection of the 4hr trendline and the Fibonacci 0.786 retracement level. A conservative stop loss of 35 pips and a long term profit target at the weekly highs meant a R:R ratio of over 15:1.
The key thing I want you to take from this trade entry and analysis is the importance of going from higher timeframes to lower timeframes and layering the technicals. Within a 30 pip zone of my long entry position there are 3 important Fibonacci retracement levels and 2 trendlines to act as support. If you couple that with the fact that all timeframes are showing multiple higher lows, the probability of this trade being successful is very high.
You can track the progress of this trade live by clicking here.
Position 2 – Long USDCAD entered 18/03/2019 @ 1.33080
- Price is resting at the daily Fibonacci 0.5 retracement level.
- Daily higher low to form.
- 2 consecutive higher lows on the 1hr timeframe.
- 1hr bearish counter trendline (CTL) broken and retested.
- Higher lower forming at trendline and 1hr Fibonacci 0.786 retracement level.
My second long position entry on USDCAD is a scale in and I took this trade to further capitalise on the higher timeframe bullish momentum. It means that if USDCAD does indeed go to my original profit target then my combine R:R ratio will be over 27:1 instead of 15:1. This is why I like scaling in to longer term swing trades because it can dramatically increase your profitability.
At the point of entry for this second position, my higher timeframe bias was still very much bullish. The weekly chart did produce a bearish candle but the daily chart had made fresh highs and I believe this bearish move was simply a pull back and market correction before it continues its bullish path. The financial markets cannot and do not move in straight lines… they have to breathe and pause and gather strength before continuing on their intended path.
I chose the 1 hour timeframe chart for this 2nd long position because it produced the clearest and most accurate entry. We had a bearish 1hr counter trendline (CTL) that had taken price back down to the daily 0.5 Fibonacci retracement level before a double bottom formed at this price and the bearish CTL was then broken. I then waited for a 1hr higher high to be made to confirm that the bearish trend was being reversed on this timeframe.
This is where it gets clever (or stupidly simple really) because I then repeated the fact same process as my first entry. I saw that a higher low had been formed so I drew a simple bullish trendline across the lows and then I added the fibonacci retracement tool to the most recent swing high and swing low to find where they interact. At the point where the trending and Fibonacci 0.786 level intersect I placed my entry after the bullish wick rejection candle. Exactly like the first entry but on the 1hr timeframe instead of the 4hr timeframe. This zone also perfectly coincided with a retest of the broken bearish CTL and a higher was formed. I have marked up a copy of the 1hr chart below with all the confluences that produced this very accurate entry.
You can track the progress of this trade live by clicking here.
In terms of stop losses, I tend to try and keep them fairly conservative at around 30 pips. Most of the time this size SL isn’t necessary and this is shown in these 2 trade examples but there is no harm in not being too aggressive. The R:R ratio with a 30 pip stop loss is still very high and acceptable to me.
I am fairly relaxed when managing these trades. I have the first long position completely risk free and the second position is soon to be risk free when price gets to around 50 pips from entry. I then am able to simply let them run and monitor on the daily timeframe until they hopefully reach the intended profit target at 1.3650/1.3670 at the previous weekly highs.
Happy Monday everyone! I hope you enjoyed this detailed trade breakdown and I look forward to posting more like it in the coming weeks and months 🙂