From Hao Sun at Trade With Precision
Trading in harmony with the market momentum is one of the key factors in my journey to trading consistency and success. In the foreign exchange market, if one currency is much stronger or weaker than its trading partners, then we should focus on those pairs for potential trading opportunities.
After the surprise from the Swiss National Bank, the market has since spent 10 weeks digesting the news. From last week, CHF has begun to show some strength against all of its trading partners. Let’s analyse the EURCHF to see if there is any potential for an opportunity.
The EURCHF weekly chart (below) has pulled back into the moving average sell zone. Over the past few weeks we can see the possible shift of power from buyers to sellers. Let me explain this a little, on the week ending 27th Feb, the chart printed the 1st indecisive weekly candle in the sell zone since the pullback began from the lows of the market spike. The next weekly candle (week ending 6th Mar) was the narrowest range weekly candle for many weeks, which may signal that buying has now been exhausted. The next weekly candle (week ending 13th Mar) confirmed supply overcoming demand with a firm close almost at the low of the week and also below the low of the previous two weeks. This brings me to last week’s candle which saw some weak buying pushing price up to retest 1.0600; this move was met with swift and decisive selling which has pushed price back down to close at the low of the week. This strong rejection may very well be the sign that sellers have finally taken control of the market.
So what does this interpretation of the weekly candlesticks tell me? You may be wondering why do I like to go into such great detail? Well, the answer to that question is that I aim to get an indication of strength or weakness on the higher timeframes and then look for opportunities to trade with this momentum on the lower timeframes. On the daily chart, price has changed into a downtrend with the moving averages beginning to line up in the correct order. Notice the lower lows and lower Highs trending lower over the past 4 weeks of trading. This confirms the weekly chart’s weakness.
On the 4 hour chart, multiple technical factors signals further weakness of EURCHF. Firstly, price is currently finding strong resistance at the old resistance around the 1.0530 level (marked with a dash blue line in the chart below). Secondly, price has also pulled back into the moving average sell zone. Thirdly, price has also pulled back to 61.8% Fibonacci retracement level. Lastly, the last 4 hour candle has rejected that resistance showing a potential location for me to take action and trade. I will look to initiate a short position if price breaks the low of this rejection candle with a stop at the high of that candle. The potential short term target is the old swing low 1.0420 and the long term target at 1.0000 parity level.
If you would like to learn more about how I analyse the markets and my trading strategies, then please visit the CMC Markets Education page and register for the Advanced Education Course.