Historically, when we look at monthly price targets we are looking for an opportunity to take advantage of smaller stops and large rewards. Of course, it makes sense that if you are risking less than you are looking to gain, you don’t have to be able to predict the future to be able to make money trading any market. However, these situations arise far more often in the Forex market than in any other. Let’s take a look at the USD/CAD on the weekly time frame and see why we want to pay attention to this chart:
As you can see we have a classic sign of reversal — as taught to us by the FX Chief — showing up here on the weekly. To me, it seems like there should be a price correction on this particular pair due to the low ranges we have been seeing in oil. Of course, this is an oil related cross with the CAD being involved here. The A/B here is pointing down so we are looking to enter in this direction on a more manageable time frame. Let’s see what we have:
On the 4-hour time frame, the A/B is also pointing down and we have a current level of pullback on this sub-swing as a .500. Normally a .500 is not enough for us to buy in fully on this trade; as you know I prefer the .786 or the .860 because of the risk versus reward factor involved. This means I need a price point or resistance to fail in addition to the pullback and trend line break before I enter selling to the UN-HIT monthly target in BLUE. So a smart pending order might look something like this:
I believe this potential trade has a lot going for it. The monthly target is still to be hit and we know these are 90% on most pairs. In addition, we have the weekly time frame signaling reversal and the 4-hour is giving us a fib pullback that is semi-favorable. Also, risking 89 pips to go after 195 makes sense to me combining all the factors together and coming up with an overall summary of potential risks. I like this trade during the push the European market makes. I believe this could be a fairly small investment of time and money for a large potential reward.
Good luck and hope this finds you in good health!