- CHF/JPY enters the bear’s layer, but there could still be some upside potential left before a phase of distribution.
- So far, the daily and 4-hour structures are holding, giving rise to bullish prospects still and a 4-hour trade set-up.
CHF/JPY has extended to the upside in a series of unadulterated monthly bullish candles into a supply zone, meaning that any long from here is a high-risk trade and should be taken at reduced risk.
Nevertheless, the stars are aligned for a test into higher supply zone territory for traders too impatient to wait for a more compelling short side playbook.
The four-hour swing-trade setup is as follows:
As can be seen, the price has broken up to a short-term resistance area, for which if it holds the price, it offers an opportunity to enter long from the bullish support structure on the anticipation of a continuation.
RSI is bullish which is supportive of the bullish view and price is above the 21 moving average as well.
Again, this is a higher risk trade considering the price is due to correct on the higher time frames and is entering an area of distribution.
Therefore, a long entry should be taken at reduced risk, meaning, if the trader risk management rules usually only allow for between 0.5-2% risked, then the lower end of that scale would be appropriate.
The stop loss placed as illustrated on the chart offers a 1:2 risk to reward.
The stop loss can be moved to breakeven once the price has moved beyond the current resistance which would be presumed new support.
The following is a top-down analysis of the pair from a monthly to daily outlook and offers the possibility of a swing trade to the downside.
Monthly chart: Price enters the supply zone
There is still some room to go on this chart, hence the 4HR long opportunity.
Monthly chart: Bears looking for a setup for a correction
The monthly time frame also shows that at the current highs, a 38.2% Fibonacci retracement confluence offers a short opportunity form the distribution area.
There are also prospects of a nearer-term target slightly higher up at the 23.6% which also has a confluence of the prior structure looking left.
A break of that level could be an opportunity to add to the short position.
Weekly support holding
The weekly chart offers a compelling continuation to the upside, as the price is supported at structure still before resistance will likely reject the price.
The daily chart shows price has emerged from a retest of support which is also near-term bullish.
This leads, again, to the 40hour long set up as explained above:
Unfortunately, the train has left the station and it looks like the target will be achieved without being on board.
In a situation like this, it is important that the entry is removed.
Had the buy limit been triggered, this would have been the time to move the stop to breakeven for a free ride to the target as demonstrated in the following chart:
There is little to be gained in chasing the price in a distribution zone, so it is time to turn bearish on this pair and await bearish conditions for a short.