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Weekly Update 16/09/2011 – Long Term Day Trade Setup EUR/CHF

Hey everyone. It’s been a while since the last trade update. I hope everyone is doing and trading well! This week was for me a “testing” week, and thus why I only took a few day trades. Over the last 2-3 weeks we have seen some incredibly strange price action in the forex market. It seems as if the fx market caught a bad case of alzheimer’s and forgot how it “normally” responds to general price action based day trading strategies. This isn’t so out of the norm for the forex market during this time period. It is well established fact that many major bankers and currency traders are on holiday from the end of August through Labor Day week. This time is often referred to as the “summer doldrums” due to it’s lack of activity. Now this time around we had no lack of movement, it was rather the way in which the market moved. That being said we stayed cautious this week hoping to see a return to normal in market volume, patterns, and general price action…..and we did!

I don’t have much to go over with the weekly update except for one pair and that is the EUR/CHF. Last week on Sept 6th the SNB (Swiss National Bank) pegged the EUR/CHF at no lower than 1.2000 Essentially they vowed to keep the EUR/CHF above this point. In slightly over 15 minutes the EUR/CHF spiked up over 900 pips to get above this point. Therefore 1.2000 is the protected level. Trading forex is all about risk vs. reward. Before getting into a trade, while managing a trade, and determining when to exit a trade are all points where you should be examining the potential R/R. That being said let’s examine the R/R on the EUR/CHF.

If you look at a weekly chart of the EUR/CHF you will see that the last push down starting in October of 2007 was close to a 7000 pip move down. With the SNB’s promise of holding the price above 1.2000 there is from the current price only around 80 pips of risk and about 4700 pips to the overall highs of the last large move down. Now I wouldn’t shoot for that as a take profit but I’m simply illustrating potential. Let’s just say this goes to just the 38.2% retracement which is right above 1.2600 and thus in the area of a 600 pip take profit from this current point.

Now I rarely hold trades for an extended period of time but this situation is a bit different. In the forex room we got long on the EUR/CHF from 1.2055 with a pending order to go long. On the chart above it triggered our pending order to go long with the first bounce off the trendline. Essentially I put a long order above a range from the previous day. This day trade is based strictly on R/R. We plan on holding this trade for quite a while. As of right now we have a 40 pip stop on our position. I don’t think this will re-test 1.2000 exactly which is why our stop is not below that level. When the market opens on Sunday give some thought to this trade and if there is a short term price based entry giving a small stop it might not be a bad scalp that you could potentially turn into something much much bigger! See you all Monday!

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