If someone says he has a 100% trade setup in the Forex Market, you have to be very skeptical about the person. Do not forget something: there is no 100% trade setup in this business. You have to be always prepared for the unexpected. You need different strategy for different pairs as many pairs have their own special features which you have to learn. You will still not find a 100% trade setup, but you have a better chance to spot some very nice Risk/Reward (R/R) ratio trades.
One of these good R/R trade possibilities is to go long on the EUR/CHF pair at the 1.2000 exchange rate. Before going into details look at the attached, weekly EUR/CHF chart. You have to see something special. I even marked the “Area of interest” to give you some help. What is the reason that this pair is just not going under the 1.2000 rate? Do you have an idea?
Guest post by Tamás Sziládi
You have to be aware of some fundamentals to answer the questions above. The Swiss National Bank (SNB) decided it does not want the Swiss Franc to become too strong, which would hurt the Swiss export, therefore the Swiss economy. The SNB introduced for this reason a “peg” at the 1.2000 level. In the Forex World this means if EUR/CHF reaches the 1.2000 peg level then we have a high probability to see an intervention from the Swiss National Bank to buy EUR and sell CHF which would devaluate the Swiss Franc and protect Switzerland’s economy.
The attached weekly chart shows the last 3 years for EUR/CHF. We can observe that the pair never really maintained a position under the 1.2000 level. In case it reached the magical 1.2000 exchange rate, then shortly after that we have seen a sharp upward movement.
How can we take advantage of this? When the pair is getting close to the 1.2000 level, it might make sense to put some buy orders at around 1.2005-1.2010 and aim to get 30-40 pips out of the trade. As you see this is not a long-term trade idea and also we do not aim to make hundreds of pips. This is a potential short-term trade with good risk reward ratio. It still makes sense to put a Stop Loss at around 1.1980-1.1985 just in case something unexpected happens. As your risk is limited to about 20-30 pips with this setup, you can still make nice income with this trade by increasing your lot size. Another possibility to make more money on this trade is to aim for 60-70 pips on the setup, however in this case you will have the risk that the short upward movement will not reach your profit target.
Always keep in mind though when you want to trade this relatively safe setup: if you are a disciplined and good trader, you will always remember there is no 100% trade setup in the Forex Market so a Stop Loss is still needed to protect you from unexpected events.