It’s no surprise – no trend goes on forever. The USD/CAD FX pair was running along to the upside for months, the divergence in the Momentum Indicator can’t be overlooked. The last two weeks were, just as in the Indices, moving against the prevailing trend, too.
The chart shows all valid fractal buy signals to follow this trend wherever it may go, and for how long it needs to go there. Time is crucial, it is on your side, because you need it for a trend to develop. Therefore this uptrend was profitable all throughout, but it wasn’t one where you buy at the beginning and just exit 5000 pips later. In this case you actually had multiple entries and exits to catch a bigger chunk of profits.
This is no problem for the trend trader, whatever the market offers – you take it. Sometimes the market moves smoothly above the shown moving averages, never hitting even one of them. But other times two or more pullbacks during the trend can stop you out and you simply have to re-enter to follow the market flow. This was the case here. Still, all trades were profitable in the USD/CAD and it is anyone’s choice where to exit (define it in your trading plan!).
The last week of trading is again showing that this pair really is not in the smoothest trend in the world, it is rather again looking for some balance by an internal correction, and seems to be trading pretty close to the dotted moving average as indicated in the chart. A close at the end of the week below this support area could indicate a trend ending and therefore an exit. In order to protect profits the current stop was moved into the profit-zone, but the trend should be let run and we simply wait until price triggers our exit signal.
The divergence between prices and the pressure it really has to move on higher, is also not an indication of bulls keeping this uptrend alive for all that much longer. Since a divergence can occur over many months, even years, on a chart, we don’t know when it will unfold its power and contribute to the end of a trend. Noticing it when it is there and paying attention to its magnitude while unfolding, can give good indications for timing a new entry and the significance of the move following that entry. Referring to the monthly chart, there has a Divergent Bar (or Pin Bar) occurred at the end of Jan 2016, but the trend is still moving, Momentum is up and all buy fractal signals are working. Maybe the market is taking a break …
What looked so great at the beginning of the year, not just in World Indices, but WTI and now the USD/CAD, seems to all be taking a break soon, let’s manage the positions according to market behaviour by using our rules and trading plan.
We’ll see what happens then.