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Rare EUR/CHF Set-up with Ultra-Low Risk

Rare EUR/CHF Set-up with Ultra-Low Risk

2014-05-07 15:50:00
Kaye Lee, Head Forex Trading Instructor
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Talking Points:

  • Weekly Pennant Formation for EUR/CHF
  • Clear Confirmation from the Daily Chart
  • How to Secure Risk of Only 8-12 Pips

It is rather rare for intraday traders to have an opportunity to participate in moves involving the weekly chart, but such a set-up may be present in EURCHF right now.

As shown below, the pair has formed a bearish pennant pattern, and although price has not yet broken the pennant, a breakout to the downside could (according to classical technical analysis) give rise to a move of 290 pips or more in that direction, and with minuscule risk to boot.

Guest Commentary: Bearish Pennant on EUR/CHF Weekly Chart

A bearish weekly pennant formation is now present for EUR/CHF

The daily pattern (see below) reaffirms the downtrend. Clearly, EURCHF has been retracing back up toward the declining lines of resistance, as it has paused for a breath following a major move down early this year. Price has already begun to flirt with one of the declining trend lines, and may soon continue its descent.

Guest Commentary: Clear Confirmation on EUR/CHF Daily Chart

An upward retracement into declining trend line resistance on the daily chart of EUR/CHF helps validate the case for new short positions in the pair.

The four-hour chart below reveals a hidden line of resistance between the current price and the longer-term trend line. This quite conveniently permits a zone of resistance to be drawn at the blue box between 1.2192 and 1.2201.

This zone is ridiculously small and only 8 pips deep, but that is somewhat unsurprising given that EURCHF is a relatively docile pair.

Guest Commentary: Ultra-Small Resistance Zone for Selling EUR/CHF

Confluence resistance on the 4-hour chart of EUR/CHF allows for an ultra-narrow risk zone for new short positions.

Nonetheless, an entry on the hourly chart (see below) would still be most preferable. Veteran traders occasionally brag about entries with tiny stop losses of only 8 or 12 pips, but in this case, it might actually be attainable.

Of course, the spread must be properly accounted for to avoid unnecessary stop-outs, however, short entries on bearish reversal divergence, pin bars, and/or bearish engulfing patterns would likely yield stop losses in that ultra-narrow range.

Guest Commentary: The Ideal Time Frame for Selling EUR/CHF

New short entries can be taken in EUR/CHF using valid triggers on the hourly time frame.

Given the prospects for this trade becoming a runner on the weekly chart, it is certainly worth two or three attempts to get in on this set-up using the shorter-term time frames!

By Kaye Lee, private fund trader and head trader consultant, StraightTalkTrading.com

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

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