Page 26 - Ultimate Guide to Currency Trading

You could decide to imbed a 200-day moving average line into your EUR/CHF daily chart. A
quick analysis of this chart leads you to see graphically that the pair is well below its trend line, leading
you to concur with the broker's report that the EUR/CHF pair is due for a correction.

After seeing this graphically on the charts, you explore it further, only to notice that your
trusted full service broker mentioned the EUR/CHF pair in a report last week. He reported that the
value of the Swiss franc was so high that it was beginning to impede on the general economy of
Switzerland. This was due to the fact that Switzerland's high franc value was making the country's
exports expensive in Europe, therefore slowing export trade, a key part of the Swiss economy. In a
situation like this, it would be safe to assume that the EUR/CHF pair is something to be watched
closely.

You Spotted a Trade, Now What?

Before you begin to trade the EUR/CHF pair, there needs to be a catalyst, an event that gives urgency
to the trade and urgency to the trade in other FX traders' eyes. In this scenario, one last look at the
Swiss National Bank's website reveals that the bank's leaders have a rate meeting scheduled on
Thursday of this week.

This is a great opportunity to place your trades ahead of the news. It is good to remember that
the whole market is looking at the same indicators as you; it is also good to remember that that is the
only information they have. Due to its size, the FX market is very deep and liquid; this means that it is
very difficult to manipulate and control to one's advantage. The charts you look at are the same ones
that others have access to: You are on equal information footing with all. While you can't predict the
exact direction that the EUR/CHF pair will take, you can know that it will be moving around quite a bit
in the next few days. You can feel certain that in this type of scenario, this FX pair will be bouncing
back and forth as the currency market players try to get a footing, a feeling of where the FX pair will
be after the Swiss National Bank announces future actions regarding the direction of the Swiss franc.

Professional currency traders often sit out the day-to-day trading when there is little
news in the FX markets. Some FX traders take the approach that more infrequent, but
more carefully placed trades on big news days can offer a greater risk-adjusted return
than having positions on a daily basis.

In this scenario, a good bet is that the franc will get weaker against the euro, even if for just
short moments at a time. A long EUR/CHF bet with higher leverage and a small position relative to
your overall trading account would be the best bet. Other things to consider would be the volatility of
such a developing news story. You wouldn't want your trade to close out too, soon automatically
without the chance for the pair to move in the opposite direction. This whipsaw motion of the market