Could the report of its demise...? (USD/CHF 9/29)

Anyone following my dance with the USD/CHF knows it stopped out Monday morning with the measly 20 pips profit. This can be frustrating. It may be a sign of what I’m really doing here which is trading against the trend. The pips just aren’t there; it’s a correction. It can also be the mark of a trend petering out—remember that bottoming (and topping) is a process and not a one day event (usually).

I say it could be contra-trend because although shorter time frames are showing an uptrend, the overall daily and weekly chart show a downtrend. However I was true to my word that I would buy if it touched its hourly uptrend line. That happened yesterday at 1.0288.

This pair is in an upward channel right now. The Elliott Wave theorists can refrain from bombarding me with how this is a correction. The cycle hunters can back off as well. I will disregard the skepticism about the USD; I will disregard the remarks of everyone from World Bank president Zoellick to Chinese central bank governor, Zhou Xiaochuan, to Uncle Tad (I mean the United Nations Conference on Trade and Development aka UNCTAD. I will also disregard optimism. I will not, to paraphrase Mark Twain, ask if the reports of the USD demise are greatly exaggerated. Well, I can ask it. But I'm not going to trade on it.

As a trader, I read the market. I ask, “Can I make a case for a trade here?” If I can, there’s greater probability the trade will make money. There’s still probability for loss. Once I calculate the loss (that’s before I calculate profit) I know if I can place my trade in such a way that the risk won’t give rise to a throbbing pain in my stomach and anxiety that will have me hovering above the key board.

In the short term, I believe I can trade this pair. Here’s the hourly chart I’m working from: The pair is now up 98 pips as of 6:48 AM EST and my profit stop is guaranteeing me 20 of them. I’m getting ready to move my stop to take a bit more because it’s possible that the pair will hit its head on the upward line of its channel, say “Ouch!” and scoot back to its trend line. At which point I would buy again with my super tight stop. On and on the story goes. At least until it doesn’t.

Now look at the daily chart. Here you see a pronounced downtrend. You also see how laughably small this little uptick is in the overall scheme of things. Selling rallies in a downtrend is always the “safer” way to trade. I may do so at some point in this rally (although I'm hard-pressed to call this a rally. It's more evocative of a sputter). But for now, I’m going to wait to see.

None of the above is a trade recommendation. Remember that trading involves substantial risk.

© Dianne Fecteau, 2009. No part of this material may be reproduced in any form, or referred to in any other publication, without the express written permission of the author.