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Patterns armed with fundamentals

May 20, 2020

May 20, 2020

Fundamentals and price/actionDmitri Demidenko

Intraday trading Forex strategies

A wise combination of fundamental and technical analyses gives a trader some important advantages. Examining the influence of economic factors on a currency rate helps us identify a trend. Examining charts, we can find entry points and place stop orders and targets appropriately.  What makes the market situation more complicated is that most drivers can’t be pulling a currency upwards or downwards for a very long time. As a result, a trend breaks and a trader taken off guard loses a part of profits at best. This problem may be solved by switching to intraday trading in those currency pairs that have been stuck within a consolidation range from a fundamental point of view.

As a rule, a trading range forms when multiple opposite factors influence a currency rate. Let’s for example take the CAD. A bullish driver is oil prices growing amid expectations of a global economic recovery. A bearish driver is a probable capital outflow against the background of Canada’s eventual credit rating downgrade. As a result, [USD/CAD][1] got stuck in a range of 1.385-1.415 shaped like a shelf from the “Splash and shelf” pattern on the daily chart.

Splash and Shelf pattern on the daily chart of USD/CAD

![LiteForex: Patterns armed with fundamentals][2]

Being aware of the range limits and determining the risk zone as +/- 30 points from its extremums, we can start building a strategy. It’s based on the combination of the patterns [1-2-3][3] and [Three Little Indians][4]. It has to occur in one of the risk zones. If it happens, we may make use of our expertise in both fundamental and technical analysis.

1-2-3 and three little Indians in the H1 chart of USD/CAD

![LiteForex: Patterns armed with fundamentals][5]

In order to define entry points for a short position according to the 1-2-3 pattern, we need to draw an auxiliary trend line through the corrective minimum (p.2) and the bottom of an ascending short-term trend. If this line is broken and the breakout bar closes below the break point, we have a signal to sell. According to the classic pattern, a protective stop order should be placed above point 3, but I think it can be placed outside the consolidation range. Only a breakout of its upper limit will create the necessary prerequisites for the currency pair to move to a new trend.

As for targets, a trader can use a trailing stop until either of or both reversal patterns - Three little Indians or 1-2-3 - have formed in the H1 chart. The ideal scenario: they form near the opposite limit of the consolidation range. Then an opposite trade can be opened. In the case of [USD/CAD][1], it’s a long position after profit fixing of 150 points (stop loss: 65 points, profit-factor: 2.3).

Intraday trading strategy for USD/CAD

![LiteForex: Patterns armed with fundamentals][6]

Using fundamental analysis helps us to see that the limits of a consolidation range may be larger than what charts may show. In particular, [in mid-April][7] I predicted that [USD/JPY][8] would get into the range of 106-110 amid stabilization of US stock indexes without any improvement in the epidemiological situation. At the lower limit of that range, there occurred a well-known combination of the patterns Three little Indians and 1-2-3. Opening a long position was a mere formality.

Three Indians and 1-2-3 on USD/JPY H1 chart

![LiteForex: Patterns armed with fundamentals][9]

Storms are a rare thing at Forex. So, consolidation trading with the use of fundamental analysis may be quite appropriate to those traders who prefer a frequent opening of trades to the “you bought it-you hold it” principle.

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Ask me questions and comment below. I’ll be glad to answer your questions and give necessary explanations.

Useful links:

  • I recommend trying to trade with a reliable broker [here][10]. The system allows you to trade by yourself or copy successful traders from all across the globe.
  • Use my promo-code BLOG for getting deposit bonus 50% on LiteForex platform. Just enter this code in the appropriate field while [depositing][11] your trading account.
  • Telegram channel with high-quality analytics, Forex reviews, training articles, and other useful things for traders

Price chart of USDCAD in real time mode

![Fundamentals and price/action][12]

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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  1. my.liteforex.com/trading/chart?symbol=USDCAD&returnUrl=true
  2. cdn.liteforex.com/cache/uploads/blog_post/strategies-forex/usdcad1-20-05-20.jpg?w=30&s=f20e72f8dd675e9c5d77cbe9f595a259
  3. www.liteforex.com/blog/for-beginners/1-2-3-pattern-easy-to-hard/
  4. www.liteforex.com/blog/for-beginners/three-little-indians-a-cure-for-euphoria/
  5. cdn.liteforex.com/cache/uploads/blog_post/strategies-forex/usdcad2-20-05-20.jpg?w=30&s=cfde340e91688912f9a5bdbcf9e5141b
  6. cdn.liteforex.com/cache/uploads/blog_post/strategies-forex/usdcad3-20-05-20.jpg?w=30&s=893eb7df549e443fdba7efa32ccea20a
  7. www.liteforex.com/blog/analysts-opinions/yen-was-spurred/
  8. my.liteforex.com/trading/chart?symbol=USDJPY&returnUrl=true
  9. cdn.liteforex.com/cache/uploads/blog_post/strategies-forex/usdjpy-20-05-20.jpg?w=30&s=b2dda13b4fad2a5bf62edcd4fa50cddc
  10. my.liteforex.com/?category=for-beginners&slug=fundamentals-and-priceaction&openPopup=%2Fregistration%2Fpopup&utm_source=blog&utm_medium=article&utm_campaign=bonus
  11. my.liteforex.com/deposit/?category=for-beginners&slug=fundamentals-and-priceaction&promo_code=BLOG&utm_source=blog&utm_medium=article&utm_campaign=bonus
  12. cdn.liteforex.com/cache/uploads/blog_post/strategies-forex/liteforex-blog-strategy-20-05-20.jpg?q=75&w=1000&s=67cdacbc38c856626ef605cb2a42a9b2