USD/CHF is forming a Rounded Bottom Pattern

Monday, 13 September2010

When currencies move, they often form patterns which allow us to gauge some idea of future price action. This is called technical analysis, and it is an extremely valid and reliable method of predicting future price movements.

Today, we've been looking at the USD/CHF currency pair with a daily chart to see if we are able to identify any of these patterns. It's no coincidence that we chose this pair. As the EUR/USD and USD/JPY have been grabbing the limelight with their movements lately, we thought it would be best to spice things up a bit and take a look at a few alternative currency pair's over the next few days.

So – what are we seeing on the USD/CHF pair? Well, on the daily and monthly charts, we seem to be finding a number of "rounded bottom" formations.

This essentially occurs when the currency pair bottoms out, but instead of doing so abruptly, it eases its way down, and then eases its way back up. The currency pair has done this three times already, but the convenient thing for us as traders is that the third and latest bottom is only half complete.

Given the history of price and that fact that a rounded bottom has been experienced on 2 separate occasions in the last 2 months – we believe that this third setup could present a lucrative trading opportunity for someone who is actively monitoring the markets.

How soon that opportunity will present itself is slightly more difficult to predict. We believe that the rounded bottom which is half complete will probably take another two to three weeks' worth of trading to complete the pattern, so now is a better time than ever before to get in on the trade.

Our current set up is a long position, entered on the low of a candle any time within the next few days.

Our stop loss order is placed below the recent low on the daily chart – at around 1.0110. This should protect us if fundamental information results in a swift move of the currency pair. Additionally, our profit or target level is placed slightly below the recent high – which makes for a perfect trade given the "range trading" but slowly moving USD/CHF pair.

We will keep our eyes on this trade to see how it unfolds in the coming weeks. We will update you on our position if we do make a change to it. Currently, we have 1 standard lot at risk on this trade.