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USDCAD Short Trade – Pullbacks

In my weekly Forex setups, I have mentioned before I don’t post all of the instruments I am watching for the week (and beyond).

The purpose has always been to teach you – not feed you.  There is more power in you learning:

  • What a setup looks like
  • When a setup fails and finding if there is still opportunity
  • Not every setup will trigger
  • Various ways to enter a trade including lower time frame usage

Over the years, I have received so many great comments (some not so great from those looking to be fed) which let’s me know my approach with the blog, is the right one.

This past week I saw a setup on the USDCAD pair that wasn’t listed in my setups.  I want to cover this particular trade from the other ones I had because the lesson is:  simple works.

  1. Trend lines have no magic but they can segment the chart for you.  The key to drawing a trend line is to ensure the last swing point that leads to a new high or low, is connected.
  2. The pair was in a trading range
  3. Price drove from resistance all the way into support and broke out.  Any breakout that starts from one extreme, is usually a low probability play.  Expect a pullback especially when the move down is a complex swing (A-B=C-D)
  4. Price pulls back after the breakout in a complex correction and bases.  Our lower time frame shows a range

I want to show you the broker chart so you can see this is a real trade and highlight other important points.

  1. The entry was at 1.3390 and if you look at your four hour chart, you will see a range at that price.  The entry was a breakout of a range on a lower time frame to get into a pullback trade on the higher time frame.  That is the proper use of multiple time frame trading.
  2. This is a scale out of the trade while leaving a runner.  This is a risk management move and ensures that I will not take a loss on the trade
  3. This was the trailing stop however as you will see in the inset window, the stop out for profit was lower.  I was using a 1.5 X ATR from lows and adjusted the stop after the red candle closed

In short, 

  1. Price broke from a range and I expected a pullback
  2. Price pulled back halfway into the range
  3. A range formed on the lower time frame setting up a breakout entry into the pullback
  4. Stop was set at 1.5 ATR (I keep a tighter stop on pairs that don’t tend to trend very well)
  5. Scale out and trail

Simple Works In Trading

We do not need a thousand different trading indicators or rules.  The pullback is a price move that has been happening in the markets since there have been markets.

Breakouts are naturally occurring and must happen or price will never trend.

Combining the two is a common sense approach and is one that has increased my trading account over the years in more ways than I can count.

Any questions….please comment.


3 thoughts on “USDCAD Short Trade – Pullbacks”

  1. Hi SD, you could well have traded the pullback halfway back into the range and still made some good pips!!

    Reread the article. That is where I entered – in the range after the pullback

    1. Sorry maybe I did not make myself clear. I mean you could have gone long from point 3 – during the pullback.

      Ah, yes, I get you. You could but I don’t really play ranges. Good eye.

  2. Thanks- crystal clear after you walk me through it. I missed this one in real time. I have always been hung up on top-down time frame analysis. I have never thought of a lower time frame breakout as a trigger for an upper time frame setup. Really dumb now that I look at it. Typically I’d see that then drill down lower for an entry, and get lost in the counter move as the market fluctuates. A sincere thank you for opening my eyes and my brain.

    I don’t get hung up on multi time frame analysis. Yes, maybe looking higher to see turning points but that is it. I find the setup on daily and use a pattern to enter on the lower time frame at times. This is a common move that is talked about every week in our updates.

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