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USD/CHF Technical Analysis: Range within a Range, part 2

USD/CHF Technical Analysis: Range within a Range, part 2

2016-09-28 17:49:00
James Stanley, Strategist
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Talking Points:

  • USD/CHF Technical Strategy: Still range-bound, with no clear sign of when this may end.
  • The Swissy has seen a tighter range build over the past week, within the larger, longer-term range of the past six months.
  • SSI - If you’re looking for trading ideas, check out our Trading Guides.

In our last article, we looked at a range-bound USD/CHF. Much of that is still the same: Swissy is still range-bound, prior support and resistance structure are still intact and there is little expectation for that range to break or this condition to change, at least in the near-term. And despite the lack of excitement, this isn’t necessarily a ‘bad’ thing as a consistent range can offer one of the more alluring aspects to traders in the fact that it’s simply consistent.

The difficult part about trading a range is the prevention of forced trades. With consistent support and resistance, traders can be lured into jumping-in more quickly on the prospect of that support or resistance holding-up. But this completely misses the benefit of the range, which would be buying while at or near a consistent zone of support and closing the position/getting short while near a consistent zone of resistance. Despite the pattern of prior consistency, traders still need to address risk-reward ratios because ranges don’t last forever; and when it does break, traders can’t afford to have the smaller profits of many trades wiped away by one really big, bad loser. This is the Number One Mistake that Forex Traders Make, and given the consistency and ‘moderated greed’ that can be brought upon by range-bound conditions, traders can often get lured into a false sense of confidence.

Traders want to approach the range just as if not more prudent than they would a trend: Risk-reward ratios still matter. The possible upside of the trade working out must offset the potential risk should it fail. The true benefit of the range is that setting these levels becomes fairly simple as you know where stops and targets should be placed.

In USD/CHF, we’ve seen a case of range-compression over the past two months of the six-month old range. The ‘bigger picture’ support zone can be seen in purple below, comprising the zone from the .9446 low to the fibonacci level of .9567. The most test of that zone was over a month ago, so in blue, we’ve added the shorter-term zone of support in the ‘sub range’ within the range, as we had discussed in our last article.

The resistance side of the zone is tighter given the double-top produced off the .9948 Fibonacci level, which is the 61.8% retracement of the 2011-2015 major move. The last test we saw of that level was the end of July, so just as we did with support we’ve outlined a tighter, more short-term level of resistance that can be used in the ‘sub range’ within the bigger, longer-term range.

USD/CHF Technical Analysis: Range within a Range, part 2

Chart prepared by James Stanley

--- Written by James Stanley, Analyst for DailyFX.com

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

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