USD/CAD – Hard Bull Bounce from Daily 200EMA

USD/CAD, what a bounce! I was short from 1.34800 just after the breakout to the downside and took all profits at 1.34200, just before the daily support at 1.34150, and the chart below demonstrates exactly why. Up until that bounce Daily support showed what I call "hot stove!" behavior. Every daily candle near the daily 200EMA was a doji or bull bar, signaling that the market was not ready to go down. Not to mention DXY being as strong as it was, the cards seemed to be in favor of at least another run to the upside before coming down. More information on DXY's Bull Action here.


If we zoom into the 5-minute chart below where the reversal began, we can see 4 key candles demonstrating the time for a long. The first noted bar, the final lower low, had a violent response to the upside which created a decent signal bar. But that's not enough to enter a long, we needed confirmation. We received it on the second bar labeled "Bull Confirmation" with a very strong bull bar closing near its high, followed by another. You could reasonably enter a long here, which I did, but I would go in with a smaller position until the break and confirmation beyond the 200EMA have occurred, and it did moments later. Bar 3 and 4 labeled the break and confirmed that the 200EMA was no longer resistance, but support! Away we go! I took some profits at the break, then added to my position once the bounce happened to the upside of the 200EMA and took more profits at 1.35700 since that was about 2 times my initial risk.


USD/CAD Reversal to Bull


Where do we go from here? Well, if you're not already in a long, be cautious. I still argue that DXY is in need of a minor pullback since it just closed its 11th weekly bull candle in a row and is above a minor resistance line. Coinciding with another red flag, this latest candle is a strong daily bull signal late in a trend, as shown in the daily chart below. Late trend signal bars are often false flags and as shown below, there is little room before the next minor resistance line. Longing at this very moment may be risky, I would only entertain a scalp with a small position size proportional to the risk. For example, if you have $1,000 of equity, you should only lose $20 on the scalp and win approximately $8.


USD/CAD Surprise Bull Bounce From Daily 200EMA


You could also risk half of that equity on the scalp, and the other half on a swing up to the next resistance level at 1.38200. I personally, plan to play the lower timeframes, 5-15 minute chart and look for small scalps along the way. I'm looking for a pullback to the previous wedge at about 1.35500 and see if we get a bounce to the upside for a long. If we fall through and get confirmation of a failed attempt to the upside, I may consider a short. I'll be watching DXY closely as well to see where the dollar is heading.


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