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A High-Probability Short Play in AUD/CHF

A High-Probability Short Play in AUD/CHF

Kaye Lee, Head Forex Trading Instructor

Talking Points:

  • A Classic Case of "Sell the Rally"
  • Key Resistance Zone for AUD/CHF
  • Why the Odds Are on Your Side

After a tedious week, markets are beginning to align once again, as this year’s final month begins. Currently, the weekly chart of AUDCHF shows a downswing in progress, and there may be a chance to capitalize on this move lower.

Trend trading, in principle, is all about buying dips in an uptrend and selling rallies in a downtrend, and as a result, this particular trade is relatively straightforward to set up.

Guest Commentary: Trading the Downswing in AUD/CHF

A_High-Probability_Short_Play_in_AUDCHF_body_GuestCommentary_KayeLee_December2A_1.png,  A High-Probability Short Play in AUD/CHF

On the daily chart below, price is already approaching a potential level of resistance due to the declining parallel channel.

Guest Commentary: Nearby Resistance Level in AUD/CHF

A_High-Probability_Short_Play_in_AUDCHF_body_GuestCommentary_KayeLee_December2A_2.png,  A High-Probability Short Play in AUD/CHF

As always, though, it is necessary to magnify the study to a lower time frame in order to gain a better perspective on the specific levels of resistance that might hold in this case. To do so, we use the four-hour chart below.

Guest Commentary: Target Zone for AUD/CHF Shorts

A_High-Probability_Short_Play_in_AUDCHF_body_GuestCommentary_KayeLee_December2A_3.png,  A High-Probability Short Play in AUD/CHF

The four-hour chart's resistance zone is a little more sparse than usual, with only two previous levels of resistance. However, the fact that the 38.2% Fibonacci retracement (extrapolated from a reasonable high to the current low) is also sandwiched by these levels makes it strong enough to use in taking a short position. That makes the final zone of resistance 0.8321-0.8377.

This trade should be taken on the hourly chart (not shown), using such triggers as a reversal divergence, pin bar, and/or bearish engulfing pattern. In fact, price has already touched the zone of resistance and is giving a potential engulfing pattern on the hourly chart.

Those nimble enough will be able to hop on, provided price has not travelled too far at the time of reading. If not, however, trades like these often give two or three snapbacks to the resistance zone before ultimately moving on, so there may be other chances in the hours to come.

As always, be prepared to take two or three tries at the trade. However, unlike some recent trades, this is a solid trend trade, so risk can be adjusted accordingly. Now, that is no excuse to go wild, but this is certainly a higher-probability scenario than the countertrend trades we assessed before it.

See also: A Daring GBP/JPY Trade That’s Well Worth the Risk

By Kaye Lee, private fund trader and head trader consultant,

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