As price action traders who focus on the higher time frames, it can be all too easy for us to discount trade ideas that require weeks or even months to set up. The restraint that is necessary to wait for the right moment to strike can often dissuade us from taking the trade once the setup eventually confirms.
A perfect example is the wedge that has been forming on AUDCAD since January of this year. In fact, if we just focus on the .9410 handle, the pair has been respecting this area since January of 2014.
Waiting several months for a trade idea to set up can lead to complacency or even a lack of discipline, causing traders to begin attempting to “front run” a potential breakout. While there is money to be made trading a 200 pip range, I still believe the true potential here has yet to materialize.
One thing we need to keep in mind when analyzing a larger pattern such as this is that, generally speaking, the longer a pattern takes to materialize and eventually break, the more volatile the ensuing breakout is likely to be.
Of course like all things in trading, this is a general guideline of what is probable and not a hard and fast rule.
Like any wedge pattern, it’s important to remain patient and wait for a break of either support or resistance. That said, I would prefer to see a break of support as there appears to be more room to run to the downside than a break of resistance might offer.
The weekly chart illustrates this idea well.
From here we can wait for a daily close outside of wedge support or resistance. A break to the upside would have us targeting weekly channel resistance (see chart above), while a break to the downside would first target the 2013 low at .9167.
Keep in mind that AUDCAD generally moves in a tight range even when trending. Therefore it may be a good idea to wait for a retest of either level following a break before considering a long or short position.
Summary: Wait for a daily close beyond wedge support or resistance and then watch for a selling or buying opportunity respectively. Key support below .9410 comes in at .9167 with resistance coming in at weekly channel resistance from April of 2013.