USD/CHF: Managing Up and Downside Expectations
The follow-through lower on the 60-minute USD/CHF swing short that I discussed in yesterday’s Daily Trading Edge triggered a number of swing shorting entries, and also tested the top line of the Wave and the 88.6% Fibonacci after one of the most recent short entries. Managing expectations upside (resistance) and downside (support) levels falls under the umbrella of trade management.
As long as the trend was down – defined by a four to six o’clock Wave angle – the swing short at the 34 period EMA low was a valid entry. The challenge, in my opinion, is to make sure to keep an eye on two factors that could invalidate this entry trigger. Either the Wave flattens out to a more sideways direction and/or prices trade higher through the 34 period EMA high. For me, the Wave flattening out would signal a shift in sentiment in a more neutral market, in which I have to wait for the trend to develop again in order to swing trade. The break through the resistance of the Wave could invalidate my using the Wave as a resistance area when prices could exhaust. I believe a trader should know the reason for a trade and know the circumstances that must surround an entry. This will prevent one from wondering when to trade or not to trade, and also when to get out of a trade.
The resistance levels at which market sentiment could shift were forefront in my mind and trading plan because without continued selling pressure from the 88.6 and the 34 period EMA high, the correction higher could easily gain the momentum needed to rally further and become a reversal.
The downside targets (most traders call ‘em profit targets), for a short entry will be support levels. No one knows where a market is going to bounce, no one. So with that in mind, we try and identify those levels which could cause the market to bounce because of the buying support waiting there. The 60-minute USD/CHF 60-minute chart I used in yesterday’s update continues to tell the story: Downward angling 34EMA Wave offering resistance along with Fibonacci Retracement levels above price action. The Fibonacci Levels (“Fibos” for short) are support and that means the 127.2 and 161.8 are potential floors and could be levels to take profit at. I believe in taking profits proactively which means I like to have a limit order waiting at or just above the support level.
The 60-minute USD/CHF currently is relying on selling pressure from the 127.2% Fibo level above (remember that this level was support when prices were trading above it) and the 161.8% Fibo level is still holding as support and as yet remains untouched.
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