Range bound strategies have proven to be some of the best trading techniques for currency pairs like the USDCHF over the past few weeks, especially during the Asia session. DailyFX research has also found that trading during the Asia session using a range bound strategy on European currencies has been one of the most profitable approaches.
It is also important to note that volatility in the currency market is at multi-year lows, meaning that previously strong-moving pairs have materially slowed. To keep the odds shifted towards a favorable balance, traders may consider adjusting to these conditions by moving from breakout and trending strategies over to a consolidation or range-bound approach.
Chart created by DailyFX Chief Strategist, John Kicklighter. Source: Bloomberg
For newer traders it can take countless hours to accurately judgeprevailing market conditions. Moreover, it also takes time to perform effective analytics, like deciding which indicator to use and how to identify the strongest levels of support and resistance. Fortunately, FXCM has designed applications to streamline this process. The DailyFX Support & Resistance Wizard has been created to plot three levels of support and resistancedirectly onto your charts. These levels are compiled by DailyFX Currency Strategist Ilya Spivak.
These levels can be best utilized in a ranging market by buying at support and selling at resistance. To help establish when the best time to trade is, FXCM created the Trading Sessions application, which highlights Asia market hours (as seen in the grey areas on the chart below).
When trading around these levels, it is also important to note critical event risk. Major changes in monetary policy expectations can cause market volatility, pushing prices through technical barriers as asset valuations realign to policy expectations. On Wednesday, 6/18, the FOMC will provide updated guidance on US monetary policy.
USDCHF, 1-hour chart
The strategy works as follows:
On 6/11/14 USDCHF was trading just below the R1 resistance level at 0.9005 (top left of chart) during the Asia session. The pair continued to trade in a narrow range until 6/12/14 when price action met resistance at R1 again and then proceeded to move down to 0.8964, where support was found on 6/13/14 (as reference by the white dashed line). The move was roughly 40 pips.
From 6/13/14 to 6/16/14 the price shot up from support at 0.8964 on a near-90 degree trajectory back to R1 where it traded around for several hours leading into the Asia session on 6/16/14. That was another 40 pip move.
On 6/16/14 the USDCHF traded back down to 0.08964, where it held once again on 6/17/14. As the market continued to oscillate, it seemed reasonable to suspect another move up to 0.9005, which played out as advertised today.
The strategy of buying at support and selling at resistance would continue until prices break and hold above R1 or below 0.8964. If the market breaks below 0.8964, the next level of support would be set at 0.8945, or S1.The DailyFX Support and Resistance Wizard and Trading Sessions application can be found by clicking on the links or by going to www.fxcmapps.com to trade the strategy.