2 R/R long setup in play

William Arsn

  • 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{5667a53774e7bc9e4190cccc01624aae270829869c681dac1da167613dca7d05} 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{5667a53774e7bc9e4190cccc01624aae270829869c681dac1da167613dca7d05} 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{5667a53774e7bc9e4190cccc01624aae270829869c681dac1da167613dca7d05} 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.

Daily chart

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.


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