The price mostly breaks the key levels with strong market momentum, creating an impulsive wave, and it's called a pole. A pole usually has a flag at the top because the price always retraces after the impulsive wave.
However, the price moves back with a liquidity spike instead of making a flag or retracement after a pole formation. This represents that the market was not able to hold the capped price and then jumped back in. After this liquidity spike, you will see price compression to the capped price to fill the hidden orders of institutions. So when the market hits the capped price, due to liquidity and compression zone, the price shoots back to the origin of compression to balance the market. This price pattern is called the CanCan Pattern in forex trading.
Let me show you an example on the chart.
Analyze the image below. Price first broke the previous resistance zone with high momentum, showing buyers are in control. You can also check that the price has already been overbought. So, the price breaks back into the pole instead of continuing the bullish trend. This tells us that there are many sellers at this capped price, and they want to sell. After that, the price made a compression up, consuming all the demand. It means it's preparing for a big bearish Impulsive wave. Usually, when a compression up zone forms, the price consumes the demand and increases with time. So, after filling the pending sell orders from the capped price, there is no demand left on the way because the price has already consumed all the demand. That's why the price shoots down straight to the origin of compression.
Usually, the CanCan pattern occurs during news events. The cancan is an actionable pattern, and you must trade it with the confluence of other reversal key levels. For example, if the CanCan pattern forms at the FTR or Flag limit zone, you can trade this pattern profitably. You can also apply scaling strategy during the compression zone and cancan pattern trading.
What is CanCan Pattern in Forex Trading?
- EugenBopsy
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I am thinking about starting investing in forex. Can anyone advise on whether it is safe or not? I heard stories about people making fortune on forex trading as well as stories about people loosing big money. So, what about you?