Trade Example – USD/CHF

Filed under: Learn Forex Trading |

There was a possible trade setup on the USD/CHF forex pair this morning (the pair for the United States dollar and the Swiss franc). However, despite electing to pass on this one, I have decided to talk you through this setup anyway…

 

Figure 1.

Figure 1.

To begin with, as always, take a look at Figure 1. This is the daily chart for the USD/CHF pair. What this chart tells us is that there is a lot of bearish momentum in this pair. The 8-day exponential moving average is crossed below the 21-day exponential moving average, and it has been for some time. There has also just been a massive black bear candle just a couple of days ago, signalling that this market is extremely biased towards the short side. As a result of all of this, I did not really want to take any long trades, as this would be going against the current momentum, and we would in effect be ‘swimming against the tide’, so to speak.

Figure 2.

Figure 2.

What is interesting on this chart though is that price is approaching a significant level of resistance (which is also the low on the chart). If you now look at Figure 2, you will see that price is struggling to break through this level. First, there was a nicely defined pin bar bouncing off of this level. Then, we have seen a bullish engulfing pattern. I did think about going long at a 50% retracement of this bullish engulfing pattern, with a stop loss placed just a few pips below the low of the move, and target of at least two times the risk. However, I decided against this due to the overwhelming bearish momentum. However, if we had put this order in, it would have been filled and a target of two times the risk would now have been met.

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