Trading the USD/CHF on July 18, 2013: 2/3 ITM

I started watching the USD/CHF at around 2:30AM EST. As part of my pre-trading routine, I single out price levels that I think could represent suitable trading areas. The most conspicuous was the resistance 1 level (green line) at 0.94501. In terms of a market level for potential call options, I had 0.94366 marked off due to the resistance that had been displayed there earlier in the morning. There was also the 50% Fibonacci retracement up at 0.94624 (relevant to the price move 0.91748-0.97500), but that could only come into play if and when resistance 1 would be broken. The uptrend was also strongly to the northside over the past few hours. However, pivot points tend to be very strong intra-day support and resistance levels, so I usually place less priority on trend when considering trade set-ups at pivots for that reason.

Unsurprisingly, based on the strength of the uptrend, price did hit the resistance 1 level on the 2:35 candle before bouncing off. I would have taken a trade at the level if it had re-touched on the following candle. The market also briefly went down to the other level I had marked off for call option set-ups (0.94366) just before 3AM. Of course, I did not take a trade here either, as I prefer taking re-touches of the level as a price action signal that the level is robust and worthy of taking a trade.

On the 3:10 candle, the market finally moved back up to resistance 1 and wicked back down. When it re-touched 0.94501 on the 3:15 candle I entered a put option. However, I probably would not have taken this trade if price had not retraced back down to the 0.94366 support level after the initial bounce off of resistance 1. If the market had only retraced back down to 0.94440 or so, like it had before the spike down to 0.94366, this would typically be an indication that there is very little selling going on in the market. Combined with the fact that the trend was clearly up, a break of 0.94501 could be in store. But given that price retraced a solid fifteen pips or so back into where the USD/CHF had been trading earlier that morning, I felt that the willingness to sell was still strong enough to enter a put option. I was able to take this trade for a six-pip winner.

After the move down from resistance 1, I began to think that a channel formation could be likely with another potential bounce back down at 0.94366. After the initial touch-and-rejection at 0.94366 just before 4:00, I took a call option on the touch of the level on the 4:05 candle. But the support did not hold and this trade went against me almost immediately after getting in. It lost by about twelve pips.

Right after that trade’s expiry, price formed support at around the 0.94244 level. This was convenient for me, as I really had no price levels considered for call or put options at that point. But it was nice to have some support form right away. I continued to watch the market for about a half-hour after the initial indication of price support, as I didn’t have any true idea whether this was a random breather before continuing to head down or a legitimate area of support where we might see a reversal. If the price action showed evidence of the latter, it would be a good place for a call option. I decided to take a call option on the touch of 0.94244 on the 4:55 candlestick. At first this went a bit against me, but it eventually wicked back up above the level and finished as a three-pip winner.

I did not take a call option on the revisit back down to 0.94244 at around 5:30AM. Price had been hanging around that level for over an hour and had consolidated into a fairly tight range. When ever the market tightens itself into a thin trading channel, I basically always wait for the market to break in either direction before looking for further trade set-ups. It’s just too risky to be taking trades in tight ranging conditions, even around what have been strong support and resistance levels. It simply eliminates a lot of your edge if the trade doesn’t have a lot of breathing room before it may quickly encounter support and resistance in the intended trading direction (e.g., a potential level of resistance five pips above where you took a call option).

A trade nearly set up back up at the 0.94366 level (where I had lost the call option trade earlier) at just past 6AM, but it never quite did. I continued to watch the USD/CHF until about 7:30AM, but I did not find anything worth trading, so I simply did not trade. It’s easier said than done, but never trade out of boredom, as only bad things can happen to both your account and confidence regarding your trading abilities going forward. Always treat your trading just as you would hypothetically treat running a business. Many businesses are “boring” in their day-to-day operations yet consistently make money. Trading unsystematically, indiscriminately, emotionally, etc. will always result in disaster much in the same way as it would hold true for any business.

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