I’m new to trading and I’m struggling to understand what caused a 200 pip drop of the USDCAD pair on June 19th. Could someone explain or tell me what caused it? I’ve been looking at the news but it couldn’t be solely be because of the CPI report that was released, can it?
1H Chart USD CAD
Super scary looking, right? Did this move stop you out? If so, don’t worry, we all get caught in these. In fact, I think this is the move that stopped me out on the EUR/USD going the other way. It was a bit unexpected (most of these are unexpected) This is actually a breakout-- a big one. When you become a bit more experienced, you’ll learn to love moves like these rather than be nervous about them.
It really doesn’t matter why these happen, from a technical analyst’s point of view. It may be reaction to a news event, which incidentally usually happens a half hour before the event! Go figure. Or it may be a phenomenon like the London Breakout.
In the case of a London Breakout, there are some compelling theories as to why these happen. For example, one theory postulates that while in the last three hours of the Asia session, price will often consolidate into a very tight range. Since the London session is the most liquid of the three, you’ll have massive amount of money flooding the market at one time, causing the proverbial “dam” to break. This causes price to move quickly in one direction; sometimes all the way into the NY session.
I think that’s what happened here. If you look up at the very top left corner of your chart you’ll notice that price is in a tight trading range. Price broke out and immediately pulled back (50% pullback, not unusual). Once price broke out of this little bear flag, the rush to sell was furious. Traders were buying closes of bear bars all the way down. It didn’t even have a chance to pull back again until the end of this big sell climax. When you see this, you just sell at the market. Don’t wait for a pullback, because it isn’t going to come.
Of course, this can happen during any session, not just London. I’ve seen it happen during NY and even Asia. The thing to remember is be prepared. The mistake I made was not getting out of the trading range in time and having my SL hit (dumb). But at least I had a stop loss set. Could you imagine if I didn’t? There goes my account!
The Feds change of tone caused a massive USD sell you can see it with JPY, EUR and GBP pairs. Basically opening the door to a possible accommodative policies.
I was actually just trying to figure out how to anticipate moves like this, I’ve seen similar but never really understood what was going on. Now I’ve got a better idea though.
I don’t understand if it opened the door to accommodative policies shouldn’t USD be buying instead of selling?
Well think of it this way if they are more open to accommodating the economy that means they’ll be using their tools to aid. Usually that starts with the fed rate but they have ample amount of tools. If they were to reduce interest to help ail the economy the actual investors and bigger parties will flock away since their basically making less with their investment with lower rates. Basically your expecting the USD to weaken but obviously I do feel a lot of what’s been happening has blown out of proportion. It’s not easy to try to be ahead of the big moves unless your the institution. Remember we receive our info much slower in comparison to the big players.
Oil…Iran shot down a drone, long story short…Supply of oil is in danger, not demand of oil., CAD is oil! Everybody above is talking crap like evangelists.
The problem is, it is very difficult to anticipate which direction price will go when it breaks out of a trading range. You have a 50-50 shot either way, in most cases. But whatever you do, please, please please don’t try using fundamental, macro or news data to try and figure it out. It doesn’t work.
I love the way the media commentators/pundits talk like they really know. They have no clue. They cover their ass by saying things like “The dollar fell IN SPITE OF the Fed’s accommodating policies.” Give me a break! They throw around their “in spite of” phrase just in case the market doesn’t do what they command. It’s really very silly (and dangerous) to follow these guys.
It’s like I said before. If you see a breakout with confirmation, like we had here, get short. Ride the trend down until we either get to a major support level or the current session ends. The nice thing about these sell climaxes, you can afford to trail your stop fairly close all the way down. That’s because it was such a strong move.
I would never intentionally try and mislead anyone.
It’s not the news itself that we should be trading, was my point. It is the institutional reaction to the news that can set the stage for a breakout. Remember, you and I cannot move the markets. In this example, the USD sold off against the CAD. It really doesn’t matter the reason. Our job as traders is to ride the trends and get out with a profit, right? So we look at a chart and see which way the market is going, and then jump in.
We cannot possibly anticipate which direction the market is going to go based on the news. You and I don’t have the necessary information. All we can do is learn to read the patterns on the chart and use good trade management skills. Only then do we have a good chance of making money.
It’s not hard to learn price action trading. It does take time, though. But it is well worth the endeavor.
All the best to you, my friend.
USDCAD has bearish since may
that is what the chart says
why the big drop ?
my Pov
any speeding car that wants to stop and return back to its destination
it needs at least 60 metres before a full stop
No bad intentions…Just clarity…Agreed
Great chart. Thanks for sharing. Helps to prove my point that it’s not about fundamental data, it’s about price being at resistance and institutions maybe needing to take some profits. The speeding car may have just gotten out of control for a few hours.
