The USD/CAD pair rose during the session on Tuesday, breaking through the 1.01 handle which has been an area that I've been wanting for some time. This is a very bullish move, but the biggest problem I have is the shape of the candle as it formed a fairly well formed a shooting star. This obviously is a very bearish candle, and as a result I have mixed emotions about this market.
In fact, it's the mixed emotions about this market that compels me to write about it. This is the type of shooting star the dips a lot of newer traders into serious trouble. What they tend to forget is that the shape of the candle isn't necessarily the only thing to pay attention to. One of the most important things is the basic building block of support or resistance. I see the 1.01 level as potential support, now that we have broken above it. Is because of this that any move lower could be very messy.
I also have to pay attention to the various minor levels just below, including the 1.0075 area. The 1.0050 level should also be a bit supportive, as will the parity level be. In other words, I think this pair is going to chop people up.
Another signal
Another signal that we may get is a breaking of the top of the shooting star. Many new traders will simply look at that as a "busted trade", and consider the set up null and void. However, what this means is that the resistance has completely crumbled most of the time. In other words - it becomes a compelling buy signal.
The market could be very brutal, and get a lot of people into trouble. Oddly enough, it is a failure of the shooting star that we need to see in order to have a “clean” signal going forward. Quite frankly, I feel that a lot of money is going to be lost below this area, and I am not interested in contributing to it at this point in time.