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I took a calculated risk ahead of the start of the French election by keeping my CHF/JPY short open, and I lost. Here’s a quick review and a quick reminder for newbies on how stops work with weekend gaps.

Trade Idea: CHF/JPY Downtrend Pullback Opportunity?

CHF/JPY 1-Hour Forex Chart
CHF/JPY 1-Hour Forex Chart

Last week, I entered a simple short-term technical play on CHF/JPY, which had been trading in a strong downtrend since topping out around 114.00 in the middle of March. I was aware of the French election but I decided to hold onto the trade for a couple of reasons:

  1. The polls showed a marginal edge in favor of Macron heading into the weekend. If Macron winning the first round was the outcome, then a rally would likely not be huge as this was a scheduled event with likely outcomes already priced in the markets. The Swiss franc would likely rally in this situation, but my stop loss would cap my max risk.
  2. If Le Pen edged out the field to take the lead, a less likely scenario than above, this would have potentially created a BIG risk-off reaction in favor of the yen as her winning is viewed as leading event into a potential French referendum to leave the European Union, which would have massively negative effects on the EU and the global economy in general.

So to me, the potential reward far outweighed the risk if the situation developed in my favor. But unfortunately it didn’t. Macron edged out Le Pen by about only 2.3% of the votes, prompting traders go into risk-on mode as soon as the markets opened in the morning Asia session. CHF/JPY actually gapped open above my stop at 110.25, closing my trade out at 111.70: 

Total: -280 pips/-1.03% loss on 0.50% risk

Fortunately, the gap up wasn’t huge as it was about one standard deviation from the Friday close, so pretty much within normal volatility expectations for the pair. Now, would I do the same thing again? Yes I would.

Again, it was so close it could have gone either way and we could have at a one or two standard deviation move to the downside…or more. In situations where the weekend risk is well known in advance, and I keep my trade small enough with wide stops like I always do because I know gaps do happen often in forex (and stops aren’t guaranteed), for me it makes sense to keep playing those situations.

So, what’s next for the pair? It’s tough to say because we still have the next round of French elections May 7, so I’ll likely be holding off on medium to longer term plays on European currencies until then. If you decided to jump in, be safe and stay nimble!

Risk Disclosure
Pipcrawler’s Q1 2017 Blog Trading Performance

This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.