Trading the USD/CHF on July 15, 2013: 5/6 ITM

I decided to trade a new asset to start the week. On, the USD/CHF pays out at 85% (net profit of the total investment size), whereas the EUR/USD offers 81%. I came to this realization shortly after I began using Trade Rush about a month ago, but I continued to trade the EUR/USD just based on familiarity. Also, my money management goal at the current time isn’t to compound profits. I’m merely making fixed investment sizes. However, when compounding is the goal (i.e., gradually increasing trade size as profits accumulate), I would always advise one to trade the highest payouts available on these offshore brokers. If you take low-payout assets, it can really cut into the profit margin and the lost profit will become vastly more pronounced over time. Not only that, but you need a higher win percentage just to break even. When trading fixed investment sizes, it’s not as important, but gaining a bit more from each trade can be useful. If you are making, say, $50 trades, then trading an 85% payout asset versus an 81% asset will garner an additional $2 of profit for each winning trade. That’s not much, but for every 25 trades you win, it’s basically the equivalent of receiving a free trade. And I’ve found that the way I like to trade is pretty successful regardless of what asset I’m trading, whether it be forex or otherwise. (I’ve spent some time trading oil, gold, and silver binaries in the past.)

When I began watching the USD/CHF, price was coming up from the pivot point at 0.94702 before hitting a resistance in the market at 0.9486. It retraced back down to 0.94753 before heading back up. It bounced again off 0.94702 although a trade did not set up to my liking – i.e., a subsequent re-touch on the following candle. However, when price came back down to 0.94753 it bounced off on the 3:50 candle and re-touched on the 3:55. So I took a call option on the touch of 0.94753 (first green candle in the first image below) and had a six pip winner by expiration.

On the move back up, price made a bounce off 0.94702 once again and I took a put option on the re-touch of the level on the following candle (the 4:35). This trade never went in my favor. Almost as soon as I took the trade, the USD took off against the Swiss Franc. I cross-checked this price move against the EUR/USD and a similar action was taking place. The EUR/USD was testing some support but the surge of the USD caused a breach of that support. This trade lost by 22 pips, which is one of the biggest losing short-term binary trades I’ve ever head. Not that the magnitude of a winning or losing trade ever matters in binaries; it was a good set-up, but it was hard to know that giant move up was coming.

Price moved up above the green resistance 1 line (0.95029) before finally meeting some resistance at 0.95139. By this point, I had resistance 1 marked off as a potential area for call option set-ups. I figured if it got back down to resistance 1, it could quite possibly be my highest probability set-up of the day. I believed the uptrend for the morning would continue and that resistance 1 would provide a logical place for the USD/CHF to retrace back down to as support before continuing its upward climb.

Price did touch resistance 1 on the 5:15 candle and bounced off before closing as a doji candle, helping to validate my speculation that 0.95029 could serve as support. When it re-touched that level on the 5:20 candle I took a call option and wound up with a 1-pip winner. I honestly expected that the trade would win by a bit more, but the uptrend did not resume as promptly as I thought it would. About twelve minutes after the expiration of that trade, price actually moved below resistance 1 before climbing back above.

Once the market moved back above resistance 1, I reasoned that it was probably best to disregard it as a price level going forward. It had been breached on the downmove and price did not show any sensitivity to it on the move back up. Of course, new price data could always overturn that decision.

The next level that I was eyeing was the 0.95139 price level, which at that time was the high for the day. Given that the USD/CHF was showing a bit of weakness by breaking resistance 1 as support, I figured it could be a pretty safe area for put options. Once price touched 0.95139 on the 6:25 candle it rejected the level, so I took a put option on the re-touch of 0.95139 on the 6:30 candle. This gave me a three-pip winner.

After that, the morning uptrend continued and the 0.95139 resistance was broken. It reached new resistance at 0.95194. It did reach back down to 0.95139, which reacted as a support level, but I did not take a call option. Nor did I take a put option on the re-touch of 0.95194. There was a bit of a channel forming, and I always like taking puts at the high of the channel and calls at its low, but there was only about a five-pip range on this one. Usually if I’m taking trades based on a channel formation, I like the channel range to be at least around ten pips. That’s by no means a hard-and-fast rule that I have, but I don’t like the idea of trading into tight channels. It definitely decreases the probability of a trade working out if, for instance, you’re taking a put option with a support level just a few pips away.

Price continued up to the 0.95303 level at 7:45AM EST before falling back down. Incidentally, when analyzing this currency pair later in the day I discovered that the USD/CHF’s high for the day occurred precisely at the 38.2% Fibonacci retracement from the price move 0.91748-0.97500. That move is latest uptrend leg on the pair and is clearest when looking at the one-hour time compression. It’s not marked off in the above screenshot, but I think I’ll keep that Fib line drawn in on this pair until price begins to move outside of the boundaries of that price move. I am not, however, using the Fibonacci lines from that move in my forex trading. I’ve been trading exclusively from the daily chart recently with respect to spot FX, so Fib lines from the one-hour chart may not be directly useful for finding levels of support and resistance to set limit orders. However, I may consider the Fib levels drawn from 0.91748-0.97500 for stop-loss and take-profit placement, in addition to possible areas for trailing stops.

Price fell sharply on the USD/CHF on the 8:30 candle. A big price move was expected here given that 8:30AM EST is a common news time. On Monday, we had U.S. retail sales and the Empire state index being announced. Retail sales did not meet expectations, so therefore that was bearish news for the USD, sending the USD/CHF down. The Empire state index is basically a statistical measure for New York state manufacturing. This beat expectations, but the Empire state index doesn’t impact the forex market much, if at all, since it only applies to one state’s economy instead of an entire country and it’s released at the same time as retail sales.

But as I’ve stated in my non-farm payrolls posts, I don’t recommend trading news releases. I prefer to wait for the market to cool off and stay out of binary trades until technical cues begin functioning again. After news time, price dropped 40 pips on the USD/CHF before respecting the 0.9486 price level as support. This was the same level where I took a put option four hours prior. It was now acting as support instead of resistance. Price moved back above but I began targeting that level for call options. The market moved back down to 0.9486 just before 9AM, where I took a call option immediately on the touch of the level. I did not wait for another rejection and subsequent re-touch, as I was confident in the level already from the previous touch after news time. This trade won by eleven pips.

Following that, the market moved back up to resistance 1 (0.95029) and wicked back down below the level. A doji formed on the next candle and I took a put option on the re-touch of 0.95029 on the 9:30 candle. This gave me a six-pip winner.

I think I’ll stick with trading the USD/CHF going forward for my binary trading due to the higher payout I can get with it on Trade Rush. I really like trading the USD/CHF on forex. It moves at about the same clip as the EUR/USD on the smaller timeframes, although the latter definitely shows larger price moves on a more macroscopic scale (i.e., which is only relevant to swing trading spot forex). But it was a great way to start the week.