This week I'm going to begin with what I call an ‘off the grid’ play.
It’s “off the grid” that because it's counter to everything that's been going on in this particular currency pair: EURCHF (the Euro versus the Swiss franc). While I haven't followed EURCHF for quite some time, I recently noticed something very interesting.
Let’s start with a monthly chart:
Clearly and unambiguously, EURCHF has been in a profound downtrend.
But this pair represents a great risk/reward play right now. If the idea doesn't work out, I won’t get hurt too badly. And if it does work out, it's going to happen very quickly.
EURCHF has caught some support recently. While that in and of itself doesn't mean a whole lot, what caught my eye is that despite the long-term bear market in EURCHF, this pair seems to be setting up for a rally to the upside. Prices have been coiling in a steadily tighter range.
To my mind, such a coil represents a compression of energy that will eventually be released explosively.
Because this is a downtrend, it's very possible that EURCHF could uncoil to the downside, but this “off the grid” opportunity suggests we could see a bounce the market isn’t expecting.
If I'm wrong I'm not going to get hurt too badly.
That makes it an ideal opportunity: a great risk/reward ratio where if you're wrong you find out very quickly, dust yourself off and look for the next one.
To see why I suspect we’ll get a bounce, here’s how EURCHF looks on the weekly timeframe:
I always seek to identify a governing price pattern on a chart, the one that dictates prices going forward. That’s clearly the very bearish head and shoulders here.
But now very subtly, EURCHF has grabbed a foothold at recent support levels. There’s a very sneaky double bottom here – it’s marked by some bullish key reversals that formed recently. (This will be more apparent when we look at the daily chart in just a moment.)
A reversal pattern like this needs to be confirmed, of course. That means the price has to break through the neckline formed by the double bottom. EURCHF has done that, plus the neckline has since been retested after the initial surge higher.
Now EURCHF is starting to find traction to the upside … again. There have been some bullish key reversals recently where the buyers were in control by the end of each week.
Now here’s a key point: I don't look at key reversals in a vacuum. There has to be some kind of preceding pattern or trend before they have any validity. But when they do reinforce the rest of the price action, that adds up to a very compelling trade,
In fact, all these things together give me the idea that EURCHF is ready for a rally higher. How much higher and what timeframe I don't know yet. But things are definitely getting “interesting”.
To play this, put in a buy stop slightly above the weekly high, a bit above the 1.08 level. Put your stop loss about 100 pips lower. This could get you into a huge move at low risk.
If the market just falls, your buy stop isn’t triggered and so it’s no harm, no foul. And if the buy stop is triggered, then you have potentially very strong momentum working in your favor.
This is the kind of setup where I’ve made small fortunes because nobody is expecting something like this to happen. The price action is sneaky and flying under the radar of most traders.
Now here’s EURCHF on a daily timeframe so we can gather more evidence that this trade has a favorable risk/reward ratio:
That subtle weekly double bottom is now much more obvious, as is the retest of the neckline.
Since then, EURCHF has traced out a reverse triangle and there's every possibility we’ll see a breakout to the upside.
What I really like about this trade is that we're going to find out soon if it’s going to work. And we also don't have to risk a lot. This is where I tend to bet a little bit more because the risk is very identifiable and the market action should confirm what I'm looking at very quickly.
This may work out and if it doesn't, we're not going to get hurt too badly. Frankly, that's the Holy Grail of trading.
Now onto the rest of the market …
Let’s take a look at the USDI (the US Dollar Index) which measures the US dollar against half a dozen of the major currencies.
It's my contention that the dollar has put in a major double top and will ultimately go lower.
USDI’s most recent head and shoulders bear price pattern is very bearish, especially after the price cracked through the neckline. And while the implications of this double top/head and shoulders combination is that the dollar is going lower long-term, in the last couple of weeks USDI put in a bullish key reversal. That should translate to interim support for the dollar in the short term.
In fact, I believe USDI will likely retest the neckline of the head and shoulders. After that, it could consolidate for awhile before dropping lower.
In last week's video report, some really attractive trades are popping up everywhere across the board, primarily in FX (including one very obscure pair) plus the precious metals too.
That’s why I made a lot of trade recommendations which I expect to pay off over the next few weeks.
Most traders haven’t spotted these opportunities yet. They’re too busy watching the wrong things or blissfully unaware of how to play these trades with the best risk/reward ratio.
This week's video report highlights:
- My ‘off the grid' trade in a pair I haven't recommended for literally months … until now (it's what I consider a Holy Grail trade)
- Why the Euro is vulnerable to a drop until it hits the short covering/buy level I've pinpointed (I give it away at 11:38)
- Which two AID pairs look poised for major gains (including the best way to get into these trades)
- Why I'm bearish again on USDJPY after flirting with the upside possibilities (starts at 13:53)
- Should you short silver?
- Should you short gold? (I give away the two trigger “price points” for playing this either way)
- Why you should be seriously worried if you're long tech stocks right now (learn why at 26:08)
- Plus much more!
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