Uncertainty, ambiguity, approximation – all part of the traders’ world. So when a chart signal sets up perfectly its often welcomed as a small dose of clear instruction from the market. And the “W” reversal in AUD/CAD is as good as it gets.
The chart shows the action. The double bottom gives the points of the “W”. Note how the first falls outside the Bollinger Bands, the second within. This is a key requirement for the pattern, and combined with the narrowing of the BBs shows volatility is lower - the (theoretical) signal that the turning point is passed.
Strictly speaking the buy occurs at the close of the blue candle immediately after the second low point, with a stop loss just below. Traders looking at AUD/CAD have two choices:
- Buy at current market prices with a stop loss below 0.9250 (the second low)
- Trade this pattern as a double bottom, buying if the price rises above the middle of the “W” at 0.9520, with a stop loss just below.
In either case, the target is the recent highs just above 0.9700.