USD/CHF – Trade Example

Filed under: Learn Forex Trading |

For today’s forex trade example, I am looking at the USD/CHF pair (the pair for the United States dollar and the Swiss franc). This is a trade that I decided not to take, for reasons that I will soon explain, but it is a valid setup nevertheless and one that could have been profitable.

 

Figure 1.

Figure 1.

If you take a look at Figure 1, you will see the daily chart for the USD/CHF pair. What you can see is that, over the past few days, price has been very bearish on this one. Two massive black candles created some considerable bearish momentum, and a bearish pin bar followed this. If you had taken a short trade after this pin bar, then you would have been stopped out, as this was followed by another, even longer, bearish pin bar. What is interesting about this second bearish pin bar is that it bounced perfectly off of a long-term support/resistance level – and an important one at that. Therefore, an order could have been put in to go short at a 50% retracement of the pin bar, with a stop loss placed just a few pips above the high of the pin bar, and a target of two times the risk.

 

As you can see, if this order had been put in, the order would likely have been filled and the target met. However, I did not take the trade because there were two pin bars together, and the second one went beyond the high of the first one. These are higher highs, and so I was guarding against the possibility of any further highers highs in the market. This would have been a slightly risky trade to take in my opinion, although those who like to take a higher volume of trades could have seen this as a good opportunity. More tomorrow…

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