The Dow Jones Industrials moved to 12,517 yesterday morning hitting our cited target of 12,500 in Monday’s report . With risk aversion striking the market, strength has been the order for the US Dollar as investor’s position for safety. Look to buy the USD/CHF at 1 pip above Sunday’s high at .9598.
For the past 5 months, the USDCHF has been in a sustained uptrend as the Swiss National Bank continues its efforts to weaken the Franc. One important decision a trader makes is to match your strategy to the market environment . Since we are in a strong trending market, traders should look to use a trend following strategy. A 36% move in foreign exchange is a strong trend so this USDCHF certainly qualifies as a strong trend to trade. To time our entries into this trend, let’s dial down to a 2 hour time frame and employ a breakout strategy which is a specific trend following strategy.
On the above chart I have added the Donchian Channels indicator (it may be called Price Channels in your platform) and set the input value to 55 periods. The Donchian Channels indicator is an important tool for breakout traders as it identifies our support and resistance levels to enter and exit the trade. Since the trend is up, we will look for a break above the higher brown channel at .9597. Therefore, we’ll place an entry order 1 pip above the channel at .9598 and place a stop loss at the lower channel.
There are several benefits of breakout trading . One of which, you can manage your trades using stop orders without babysitting your trades with market orders. Once you find a strong trend, the analysis of entry and exit are taken care of by the Donchian Channel Indicator. This strategy exits the trade when the opposing channel (in this case lower channel) is reached.
Once those price points are identified, all you need to do is simply modify your entry orders as necessary depending upon future movements of the Donchian Channels.
---Written by Jeremy Wagner, Lead Trading Instructor, Education
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