Aussie:Swiss - Letting the profit run

Aussie:Swiss - Letting the profit run

Last week I posted a discussion piece on set up strategies for a possible selling opportunity in Aussie Swiss.

There were a couple of alternatives. As it happened the chart set up as a double top and traders selling the break have so far enjoyed a decent move.

Given the size of the rally leading into the double top, this may be a situation where there the correction is quite a bit larger than the normal double top "measuring distance"

I've outlined a strategy approach that seeks to take advantage of this by letting the profit run but moving the stop to protect existing profits.

The original post discussed the possibility of a reversal set up in this chart. It was losing momentum with a failure swing on the daily RSI.  It also appeared to be ending the 5th swing of  a large uptrend.

What wasn't yet clear was what form the reversal might take. Possibilities included a triple or double top formation. You can read the original post by Clicking Here.

The first chart below shows a zoomed out view of the double top and the trend leading into it. 

The approach to strategy outlined below is based on the assumption that there is a reasonable probability that the current downtrend will correct or retrace at least 38.2% or 50% of this uptrend.

To allow for this possibility the strategy outlined in my webinar on how to trade double tops has been modified. The idea here is to seek to take advantage of an interpretation of the overall "roadmap" of this chart by running the trend further than normal.

AUD:CHF CFD - 4 Hour. Source: CMC Tracker

The strategy so far is outlined on the zoomed in version of the 4 hour chart below.

  • Entry assumes a stop entry order to sell about 20 pips below the trough between the double tops (dashed line)
  • The initial stop is just behind the upper dashed resistance line. This allowed some possibility for a retest back into the body of the double top formation
  • Following the successful retest of the old double top support (new resistance) the stop was moved just behind the retest peak
  • The measuring target projects the height of the double top pattern from the low point of the double top formation (100% measure using the Fib price tool)
  • Once price hits 61.8% of the measuring distance the stop is moved behind the high of the latest candle until a candle gets completely below 61.8%. The stop is then left at the 61.8% level
  • Rather than take profit at the measuring target the trailing stop process is used again. At the moment the stop is just above the high of the candle that hit the measuring target. This means that if price rejects this level and forms a trend trough here, the failure warning will be respected and the position closed. However, if we just sail straight through this level the stop will be moved down to the 100% measuring target. This allows a free hit at the lower 38.2% and 50% retracement objectives
  • The trailing stop process outlined above will be repeated at the 38.2% and 50% retracement levels looking to run the position if the downtrend happens to continue
  • The stop would also be moved behind any major new "overlap" resistance levels that may develop in the downtrend as these would represent a warning that the downward correction may be ending

AUD:CHF CFD - 4 Hour. Source: CMC Tracker