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Analyzing the USDCAD
A Look at the 4-Hour Elliott Wave Structure
Hey there. Let's walk through the current technical setup for the EURUSD pair, specifically focusing on the 4-hour chart structure using the Elliott Wave Principle (EWP). Understanding the context of the waves helps us anticipate the market's path and, crucially, define our risk.
Our current count suggests that the price action is unfolding within the larger green Wave 3. In EWP, Wave 3 is often the most dynamic and extended part of a five-wave impulsive move, which is why technicians pay close attention to its development. The overall picture, as indicated by the lower time frame structure, shows the price forming the sub-waves (the smaller, internal waves) that make up this powerful green Wave 3 decline.
This simply means that while the major downward trend is already established (the green Wave 3), the market is taking necessary internal steps—small rallies and dips—to complete that massive move. The current phase is all about the internal momentum of this major downtrend.
The Crucial Resistance and Invalidation Point
In any analysis, especially using Elliott Wave, identifying the point where the existing count breaks down is the most important step for risk management. We rely heavily on a well-defined resistance zone to validate our bearish view.
Key Resistance Zone: 1.1120 – 1.1125
This narrow band is our operational invalidation line. From a technical perspective, as long as the EURUSD price respects this resistance zone and doesn't sustain a move above it, our primary bearish count (the ongoing green Wave 3 decline) remains valid.
- Why is this level important?: A clean, impulsive move above 1.1125 would violate the structural requirements of the current wave count. It would indicate that the preceding upward correction (the green Wave 2) was perhaps more complex or that the entire larger degree count needs to be adjusted, potentially delaying or completely negating the immediate downside forecast. Therefore, for anyone considering a short position based on this analysis, placing a stop loss just above this critical level is paramount to protecting capital.
🎯 The Forecast: Targeting the 1.0450 Area
Assuming the resistance at 1.1120–1.1125 holds firm, the next major objective for the market is a sustained move lower toward the 1.0450 area.
This target is driven by the intrinsic nature of the third wave:
- Wave 3 Dynamics: Third waves usually achieve price targets significantly lower than the preceding waves. The 1.0450 area would represent a logical structural completion point for the entire green Wave 3.
- Fibonacci Projections: While not explicitly detailed, such targets are usually determined by projecting the length of the preceding green Wave 1 (or the green Wave 2 correction) using Fibonacci ratios, where Wave 3 often extends to 1.618, 2.0, or even 2.618 times the length of Wave 1.
Successfully reaching the 1.0450 area would mark the completion of the powerful Wave 3, after which we would anticipate a corrective, upward rally (the green Wave 4) before the final decline (the green Wave 5) begins.
Strategy and Risk Management: The Hypothetical Trade Setup
Let's discuss how a trader might approach this situation, keeping in mind that this is an educational exercise in managing risk around a technical forecast.
The core strategy here is to capitalize on the anticipated momentum of the third wave.
| Parameter | Value | Rationale |
|---|---|---|
| Entry Type | Short at Current Market Rate | Targeting the immediate continuation of the downtrend. |
| Stop Loss (Risk) | Above 1.1125 | Placed just beyond the structural invalidation point. |
| Take Profit (Reward) | 1.0450 Area | Based on the Elliott Wave target for the completion of the green Wave 3. |
The Importance of Risk-to-Reward
This setup offers a considerable Risk-to-Reward Ratio (R:R). A disciplined trader would calculate the distance from the entry price to the stop loss (Risk) and the distance from the entry price to the target (Reward). A ratio greater than 1:2 (meaning the potential reward is at least twice the potential risk) is typically favored. If the current price is around 1.0900 (hypothetically), the risk is about 225 pips (1.1125 - 1.0900) and the reward is about 450 pips (1.0900 - 1.0450). This 1:2 ratio makes the trade statistically attractive, provided the technical analysis holds true.
The Importance of Risk-to-Reward
This setup offers a considerable Risk-to-Reward Ratio (R:R). A disciplined trader would calculate the distance from the entry price to the stop loss (Risk) and the distance from the entry price to the target (Reward). A ratio greater than 1:2 (meaning the potential reward is at least twice the potential risk) is typically favored. If the current price is around 1.0900 (hypothetically), the risk is about 225 pips (1.1125 - 1.0900) and the reward is about 450 pips (1.0900 - 1.0450). This 1:2 ratio makes the trade statistically attractive, provided the technical analysis holds true.
Why Analysis Matters More Than Advice
It's critical to emphasize that this kind of detailed analysis is a tool for educational refinement and risk planning, not a signal to blindly enter the market. The high standards of EEAT and YMYL mandate that financial content must prioritize user safety and factual accuracy over promotional content.
- The use of a specialized framework like Elliott Wave Theory demonstrates analytical depth, but it is still just a theory, not a guarantee.
- We must always stress that a stop loss is non-negotiable. Trading without one on a specific forecast like this essentially turns a calculated strategy into a gamble. The market can move against any forecast instantly due to unexpected news or economic events.
This analysis is a fantastic example of a high-probability setup because the stop loss is clearly defined by the wave structure. This allows for controlled risk, which is the cornerstone of professional trading, regardless of whether the forecast is right or wrong. The primary goal is always to protect capital.
Wisdom from Past
“In trading you need to do three things: be right, manage risk, and act on your edge.” — Bill Lipschutz
Crucial Risk Management Advice
Crucial Advice: Effective trading is based on disciplined risk management, not prediction certainty. Always use a firm stop-loss to protect your capital. Macroeconomic news, particularly from the Federal Reserve or the European Central Bank, can override any technical pattern instantly.
About the Author
Ghulam Muhiuddin, Certified Technical Market Analyst
Experience: This analysis reflects the insights gained from 18 Years of consistent market analysis and forecasting, specializing in the application of the Elliott Wave Principle and advanced technical structures.
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