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3 Good Reasons to Buy CAD/CHF

3 Good Reasons to Buy CAD/CHF

2013-10-03 21:30:00
Colin Jessup, Head Forex Trading Instructor
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The daily chart of CADCHF shows a bullish hammer-style candle, a potential double-bottom pattern, and bullish Stochastic signal, all of which indicate a tradable price reversal ahead.

Looking at a recent daily chart of CADCHF, we can see that there are a number of interesting things happening, not the least of which is the pure price action alone, which signals a possible bullish reversal ahead.

On August 27, price printed a low of 0.8722, which was a well-defined support level. Then, on October 1, a higher low of 0.8735 was put in, thus forming a double-bottom pattern on the chart.

The daily chart also printed a hammer-style candle, although, technically speaking, it’s a “spinning top.” By either name, however, it is a price-action signal that lower prices are potentially being rejected. It is also a sign of market indecision.

See related: The Most Important Price Action Formation: Indecision

Finally, we can see that the lower low was made on August 27 while the Stochastic directly below the price was above the zero line. Now, however, we can see that the Stochastic below the higher low is actually still pointing slightly down and appears to be crossing below the zero line, thus showing a bullish divergence.

Guest Commentary: Bullish Reversal Set-up in CAD/CHF

3_Good_Reasons_to_Buy_CADCHF_body_GuestCommentary_ColinJessup_October1A.png, 3 Good Reasons to Buy CAD/CHF

When we put all of these items together, we arrive at a conclusion that CADCHF is potentially ready to turn to the upside. These are the facts:

  1. Price is at a clear support level (0.8720)
  2. Price action is showing indecision
  3. There is a double-bottom pattern with a higher low
  4. Bullish divergence is confirmed by Stochastic oscillator

How to Trade This CAD/CHF Set-up

The most common method for trading this set-up would be to take the break of the recent high, which was 0.8792, and add about 10 pips. A stop level can then be determined by taking the lower low from August 27, which was 0.8722, and subtracting 10 pips to get a stop-loss value of 0.8712.

Price targets can be determined in many ways, but the most common would be to look for a 1:1 move, which, in this case, takes us up to 0.8872. That makes sense considering we have lows from June in that area that are acting as resistance.

Secondary targets can be set by figuring 2:1, 3:1, etc., or by using key support/resistance levels such as 0.9040, around which price has previously made highs, lows, and/or consolidated.

See also: The Hammer Trigger for Bullish Reversals

By Colin Jessup, Guest Contributor, DailyFX.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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