EUO Trade Set-Up (Bull Flag in the USD Index)

Click on Chart to Enlarge

The chart above is the US Dollar index. It looks to be forming what is called a "flag" pattern. There is a strong advance off the lows which is the "flagpole" and then there is a downward sloping little parallelogram which is the flag. If price breaks above the upper trendline of the flag, I will almost certainly be posting a trade on EUO which is a 2x US dollar bull fund. As an idea of a price target for this pattern you project the flagpole up from the bottom of the flag. So that would be a nice move. In this case I think using a trailing type of stop would be best and keep an eye for divergence on RSI and MACD for exiting if price advances further.

Click on Chart to Enlarge

The chart above is the USD/CAD (US/Canadian currency pair). As of right now it is forming a type of Gartley pattern off of what could be a very significant low. While there is not much history on the chart, the explosive advance from Oct-Nov and subsequent slower retracement have broken the pattern of fast downward moves and slow upward moves for many months. So this is a good chart to take away that simple logic from. Of course maybe price won't move up from here, but I think it will.

For entering such a reversal pattern, you can look for candlestick patterns that indicate a bottom with a stop just below the reversal candlestick, or you can just enter and place a stop below the low of the entire pattern (lowest point on chart). Also, as a more conservative approach would be to wait for a break of the downtrend line (green line) and then enter with a stop below the most recent swing low or other nearby support.

As a side note the USD/CHF (US/Swiss Franc) pair is also looking to form a nice flag pattern, so there are several avenues to take advantage of potential further USD gains. UUP and EUO are dollar index ETFs; FXC, and FXF are the Canadian and Swiss Franc ETFs, respectively.