Hidden Divergence on USD/CHF – Trade Closed

Trade Closed: 2012-08-16 11:00 ET

Good morning! Price action was a snoozer this week, but it did go my way just enough to get me into my long USD/CHF position and into profit. Unfortunately, today’s mixed US data changed that pretty quickly.

Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary trading framework blog.

PCPOD20120816.review.png

For the review, I zoomed into the one hour chart to check out how USD/CHF moved this week. As planned, I entered a long half position on a retest of .9700 and fortunately other buyers jumped in to push the pair higher–all the way up to .9800! But unfortunately, .9800 attracted enough sellers to keep the summer range going. Coupled with today’s US Building Permits surprising to the upside (+.81M vs +.77M forecast), sparking short term risk taking and Dollar selling; weak Philly Fed survey data (-7.1 vs. -5 forecast) is also contributing to the volatile price action in the US session. With the week coming to a close, I decided to take profit as I thought that even a low priority event could spark strong moves in this low liquidity environment. I closed my position at market (.9741), and closed my open orders to go long half position at .9650.

Total: +41 pips (half position)/ +0.22% gain

In retrospect, I didn’t expect today’s US housing data to have much impact, and that may have been a mistake. It’s a low liquidity environment where it doesn’t take much orders to push the market around. My second mistake was to be overly ambitious with my profit target. Again, it’s the doldrums of summer and I should’ve been focusing on how tight the market has been moving lately. Other than that, I think I analyzed and executed well, and I even think that this may be another opportunity to play that longer-term divergence and uptrend. We’ll see.

For now, I’m happy taking a small profit into the weekend, and will continue to watch USD/CHF to see if .9700 continues to hold as support. Stay tuned by following me on Twitter and Facebook for market observations and ideas.

Thanks for checking out my blog…good luck and good trading!

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Trade Idea: 2012-08-13 06:00 ET

Good morning Forex friends! For this week, I see a technical setup I haven’t seen in quite some time on USD/CHF: hidden bullish divergence! Will the trend once again be my friend?

PCDPOD20120813.png

On the 240 minute chart above, I marked the rising “lows” on price action and lower “lows” on the stochastic indicator that signaled the bullish hidden divergence. This is a trend continuation signal, which means we may see a return to the longer-term trend higher pretty soon. Also, the Forex calendar seems to be light with any potentially sentiment shifting events, so I think July’s bottom between .9650 – .9700 may keep the market close to the typical summer range trading behavior.

Fundamentally, the USD may continue to benefit with its “safe haven” status as global growth continues to slow, especially as China may be Losing Steam. Also, the Swiss National Bank’s defense of the Swiss franc against the euro should continue to have the side-effect of favoring the Greenback in this pair.

With all that said, I will scale into my long position like my last USD/CHF trade and my stop will be below .9600. If it breaks that handle, the pair will probably head on lower to .9500. And for my target, I’ll go for July’s upper range as I think a breakout above that is low probability in this environment. Here’s what I am going to do:

Long half USD/CHF at .9700, stop at .9585, profit target at .9900

Long half USD/CHF at .9650, stop at .9585, profit target at .9900

Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Risk Disclosure.

This trade structure gives me a potential reward-to-risk of a little over 2:1 if both positions are entered. As always, stay tuned by following me on Twitter and Facebook for updates, adjustments, and market observations.

Thanks for checking out my blog…good luck and good trading!

  • pipscola

    The RSI seems mixed with a dash of bullish? will be watching and hope it treats you well

    • pipcrawler

      Thanks and good luck pipscola!

  • Юрий Миронов

    Hi Pipcrawler. Have you spoted double top on H4 near 0.9790 with neck line at 0.9700 ? I think it’s well may materialize today. Are you going to jump this trade?

    • pipcrawler

      I see what you’re seeing, but in my opinion, that rising trenline on rising lows seems to be more influencial at this point. I also take into consideration too that it’s the summer and the market is just consolidating as expected. The better trade may come soon with a breakout of this consolidation. I may just wait for that.

  • trade forex

    I usually just put up purchases and let it journey, mostly because I can’t observe the industry 24 time a day. Of course, I do pay interest to cost styles and aspect it into my research, so it’s a tehnique I’ll always have prepared.

  • Shiv

    I see a bearish divergence for the last two peaks on your chart. Does this mean entrenched bullish divergence will outweigh the recent bearish divergence?

    • pipcrawler

      It’s only my opinion, but I think it does because it is in a longer term uptrend and risk sentiment favors the Greenback for now.

  • Forex trading guide

    I am in contract with this concept but I just desired to ask if you delay for some type of cost activity indication before coming into or do you just set awaiting purchases for when the cost falls to your level?

  • jamessheppard

    Hi Pipcrawler, I am in agreement with this idea but I just wanted to ask if you wait for some kind of price action signal before entering or do you just set pending orders for when the price drops to your level? Thanks

    • pipcrawler

      I tend to just put up orders and let it ride, mostly because I can’t watch the market 24 hours a day. Of course, I do pay attention to price patterns and factor it into my analysis, so it’s a tehnique I’ll always have ready. The watching and thinking never ends my friend :)