This is a set up in a forex cross I have featured several times in the past year. Here is how I see it.

The monthly graph displays a multi-point 10-year trendline that was violated in Jul. Normally I pay no attention to down trendlines. Yet, a trendline that is so well-defined (in this case with five touch points) is some importance when combined with other technical developments. REMEMBER: The violation of a trendline never turns a market from bearish to bullish or bullish to bearish. The violation of a trendline simply indicates a change in behavior.

The weekly chart using my data source displays a 32-month ascending triangle. A number of data sources do not display the spike low in Jan 2016 (red box). The chart without this spike low is better defined as a rounding bottom pattern. A decisive close above .7830 would complete this bottom and establish an initial target of .8796, as shown.

The daily chart displays a possible 5-week symmetrical triangle. Sometimes an extended chart pattern (on the weekly chart) will form a small daily chart pattern at the end stages. This daily pattern then becomes the ignition spark for the completion of the weekly pattern.

I will be a buyer of CAD/CHF for the Factor Tracking Account if the pair closes above .7740.

Let me explain how I size trades, using the Factor Tracking Account ($100,000) for the example.

The present pip value on a position of 10,000 CAD/CHF is roughly $1.05. Assuming I enter this trade at .7750, my risk would be to below Friday’s low at .7670 (let’s use .7664 for the stop). Thus, my risk would be 84 pips (.7750-.7664) or $88 for a position of 10,000 CAD/CHF. This position size represents a position value of CAD 10,000 — and this position would be USD neutral.

I view this set up as a 50 to 60 basis point risk trade — or a risk of $500 to $600 per $100,000 of capital. On a position size of 60,000 CAD/CHF my risk per pip would be $6.29, or a total of $528.

Of course, my sizing will change depending upon my exact entry. On this trade I will monitor the cross just prior to 15:00 Mountain time before deciding if the set up is a go or no-go.

The margin (at most dealers) for 60,000 CAD/CHF would be approximately $2,420 (at a gearing of 20:1). An advance from .7750 to .8796 would represent a profit of $5,310 — although trades never really unfold exactly as envisioned.

This is my rough blue print for the trade as of 07:30 Mountain time. Things may change depending upon price action over the next 7-1/2 hours. For example, I might be willing to put on half of my planned 60,000 CAD/CHF position intraday if a break to .7726 occurs (this is the mid-point high of the triangle). Should I make this purchase I would exit it the cross closes below my entry level because the trade would represent a losing position on Friday.

I am interested in adding to this trade if/when the cross closes above .7830, thus completing the larger weekly chart base. Hopefully if/when that occurs I will have moved my stops on the initial purchase to at least break-even.

If this current small triangle begins to morph it will be back to the drawing board for me.

plb

###