Article Summary: The USDCHF is often overlooked when it comes to scalping. After dropping 258 pips, we will review if current momentum presents fresh day trading opportunities
Scalping strategies normally employ both trend identification and momentum analysis. This step in our trading plan is important but more often than not leads us to focus on more volatile currency pairs. However, this does not always have to be the case. Today for our analysis, we will take a look at a pair that is often passed over when it comes to scalping due to its smaller trading ranges. Today we will be reviewing the USDCHF to see if the market is conducive for new day trading positioning.
Below we can see a 4Hour chart of the USDCHF. Even though this pair is not often associated with large sweeping trends, the USDCHF has dropped over 258 pips from the end of last month’s trading. Traders wanting to use the trend can continue to sell as long as this bias is in place. However, before any new orders are put into play, traders will question if short term pricing is moving in the direction of the trend.
Learn Forex – USDCHF 4HR Trend
(Created using FXCM’s Marketscope 2.0 charts)
USDCHF Building Blocks
After identifying the trend, a scalper’s next step is to identify short term momentum. This step is taken to avoid potential reversals and identify key technical levels for trading. As seen in the graph below, we will be reviewing a 30 minute chart that segments our trading week between Wednesdays and Sundays. Strong momentum will be indicated if we can see a trend continuing for both partitions. So let’s review exactly where momentum is heading for the USDCHF.
To begin our momentum analysis we need to identify a starting point on the graph. Block 1, labeled below, begins on Wednesday the 3rd and runs through Sunday the 7th. During this time frame the USDCHF dropped off its high at .9525 to form a new low at .9318. Block 2 displays a continuation of the downtrend as price proceeds to create a lower low. After our analysis is completed you will notice both blocks have been colored red. This indicates to scalpers that momentum is currently pushing lower in the direction of our primary trend.
Learn Forex – USDCHF Building Blocks
(Created using FXCM’s Marketscope 2.0 charts)
Now that our analysis is completed, we can confirm there is potential to consider scalping the USDCHF. As long as the trend and downward momentum continues, traders will look for new areas to enter in breakout or swing style positions. In the event that price reverses and breaks above the standing Block 2 high at .9356, traders should take this as a signal that the market is at least temporarily reversing. At that point, we can begin our analysis again and look to trade a new currency pair.
---Written by Walker England, Trading Instructor
To contact Walker, email instructor@dailyfx.com. Follow me on Twitter at @WEnglandFX.
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