USD/CHF Trading Tutorial

This currency pair is the most traded foreign currency pair in the world. The pair is between the US dollar and the Swiss franc. The Swiss franc is one of the most popular currencies to hold in central bank reserves.

Due to this popularity, USD/CHF trading gets a lot of attention from novice traders and veterans alike.

Why?

The US dollar is a haven currency. Meaning that it strengthens in times of poor economic performance and investor risk-aversion. Which explains why the USD/CHF rate has shown a downward trend since 2011.

Following a major crisis that affected the global economy and particularly the Swiss. The USD/CHF pair has been trading in a downward arc since this period.

At their September meeting in 2014, 15 of the people on the FOMC wanted to raise interest rates. But only 4 people expected it to happen at that September meeting.

Since January 2015, the Fed has been raising interest rates. They also predicted two more hikes in 2016. Expectations are that the Fed will tighten monetary policy progressively this year.

Policymakers have been careful of the world’s economy and finances. They are trying to figure out where they can set interest rates. So that there is not too much inflation or too little growth.

Since 2009, economic performance has been bad. Central banks have had to do an expansionary monetary policy because there isn’t enough demand for loans.

The US economy, in particular, has been steady and expanding which makes a case for a hike in rates to be considered natural.

How To Trade USD/CHF?

One of the key mistakes that beginning traders make is that they get into USD/CHF trading without doing their homework. Not having a good trading plan will lead to disaster. The currency pair is very high-leverage and it is heavily traded. Any minuscule market event can send prices soaring or crashing.

If you want to trade this pairing, your best bet is to go with longer-term trades, since smaller timeframes tend to lack volatility.

The US dollar has made history. It went up in price and it is at $1.20 against the Swiss Franc. The reason is because of good news about jobs in America. Which might make the Federal Reserve tighten its monetary policy soon.

The strong greenback continues to be a major source of worry for the Swiss and other currency pairs with a high negative correlation to USD/CHF.

Where Do We Go From Here?

Trading USD/CHF can be done in one of two ways: trading the forex contract directly or by trading CFDs.

A trader who wants to trade for US dollars and Swiss francs can agree on a price. They will then buy or sell a particular amount of dollars for Swiss francs at this price.

In other words, if you buy US dollars with Swiss francs, this is called going long on the currency pair. If you sell US dollars for Swiss francs, this is called going short on the currency pair.

The live market for individual currencies, such as USD/CHF, can be traded in a couple of different ways. One way is to trade the underlying contract for difference (CFD).

A forex contract for difference is a way to make money. You trade one currency for another. This means that rather than exchanging dollars for Swiss francs, you take a position. You can do this by either buying or selling the currency.

The Binary Trade

With binary options, predictions are made about whether an asset will be above or below certain amounts at specific times in the future. The outcome of this prediction does not influence your return if you correctly predict.

Instead, you get paid out according to what percentage chance you had of getting it right. The higher the percentage chance, the more money you make when doing binary options trading.

Spread Bets

The price at which the instrument is traded varies over time. Depending on market conditions. You can place a trade for this type of contract. Either through your broker or via an online trading platform.

Some CFDs are so-called ‘spread bets’. Meaning you will not be charged a commission by the broker. 

But instead, must pay a spread to enter the trade. If you wish to take advantage of this type of arrangement, it’s advisable to only use brokers who have significant experience in this field.

Direct Trading

Another way would be direct trading USD/CHF, without using CFD but rather doing a forex trade. That means exchanging the US dollar with Swiss francs at a specific exchange rate. The exchange rate changes all the time, depending on the demand and supply of a particular currency pair.

There are several ways you can trade USD/CHF directly. From using the spot market or choosing between a few different types of derivatives. You can either take an outright position by agreeing to buy or sell at a specific price. Known as going long or short on a currency pair.

Another way to trade currencies is through forex contracts for differences. This allows people to speculate on the change in the value of currencies and not own them.

To trade US dollar vs Swiss francs, you need to understand how prices move. In other words, you need to know about ‘supply and demand’ before you start trading.

USD/CHF Trading Strategies

This pair has the highest trading volume of all the crosses. Making it a good candidate for traders looking to get more proficient. Most of this article will revolve around swing and position trading.

Swap

Swap is the difference in interest rates between USD and CHF pairs. If you have a positive swap, it means that you earn money for your cash held in the broker account overnight.

A negative swap would mean that you had to pay interest to your broker on your cash balance overnight (negative swap rates are extremely rare). Generally, if the market is trending upwards, you would make a profit when taking positions with positive swaps.

Conversely, when expecting downward movement, profits should be made with negative swaps.

Repo Rate

This is basically how much interest banks charge each other on loans in the inter-bank market. The repo rate (where e is an overnight indexation factor that considers changes in the cost of living) is set daily by the Swiss National Bank (SNB). And is generally used as a benchmark for interest rates.

The pair is very risky when it reaches oversold or overbought conditions. You might want to use less leverage when you trade this pair.

I will discuss what I consider to be some good entry points about my favorite time frame, which is the 15min chart. Firstly, however, let’s look at some key levels:

Key support/resistance levels

  • 0.9660 = 1st level of support (0%).
  • 1.0020 = 2nd level of support (23.6%).
  • 1.0100 = 3rd level of support (50%).
  • 1.0260 = 4th level of resistance (77.4%)
  • 1.0500 = 5th level of resistance (100%)

Price Action

Buying the USD/CHF pair when it is oversold, and selling it when it is overbought, will yield a healthy profit in most conditions. Here I would like to discuss what you should do if we are trading in an uptrend or downtrend.

  • Uptrends

One approach says that you should buy when price action approaches the 0.9660 level, and sell when it hits 1.0200. Another approach is to buy at, or slightly above, 0.9660. With a target of around 1.0100-1.0260 if price action experiences some resistance on its way up.

Conversely, you can sell right after hitting 1.0200. Targeting around 0.9575 for your first profit opportunity (0%).

  • Downtrends

One approach is to short at, or slightly above, the 1.0000 mark. Assuming that price will settle somewhere between the 0.9900-1 range. Another strategy says that you should place your stop loss just above the high of that day’s candle (highest point in the candlestick).

When it reaches this point, you can take your stop loss and break even. You will also get a profit because of the targets for around 0.9980 (23.6%), 0.9900 (50%), and 0.9860 (77.4%).

Carry Trade

The carry trade is a relatively popular strategy in this currency pair. It involves borrowing at the CHF rate and using the proceeds to purchase the USD to gain interest on your cash. You can alternatively do it vice versa with USD denominated funds.

To carry trade, you must have a CHF account and/or US$ denominated account. People usually do carry in smaller pairs. HIGHLY RISKY! You can also carry on the larger pairs, but it’s less risky since they have wider spreads.

The currency ticker is direction. So when buying this pair your goal will be to buy low and sell high… if you’re doing a bull spread, then your goal would be something along the lines of buying at 1.6250 and selling at 1.7000 for example. If you were going bearish, then you’d go long at 1.6250 and short 1.7000 (you’d profit from the spread more than if you were going just long).

If doing carry, it is normal to buy at 1.62 and sell at, say, 1.6150 (perhaps you expect another leg down on USDCHF). It’s not as common to see carry done with smaller pairs since there is less volatility, giving little opportunity for the carry trade. 

But we’ve seen this a lot with JPY pairs like AUD/JPY (requires a small amount of leverage though) and NZD/JPY as well as some others… carry can also be done on higher TF like 15m or 30m instead of the usual 1m.

All in all, your entry will look something similar to: BUY [currency] [amount] @ [price]. So if you were going to buy CHF 1m, your entry would be: BUY CHF 100k @ 1.6225.

The Factors Influencing The CHF/USD Fluctuations

USD & CHF pairing has been influenced by several factors since it is traded on a global scale. Some of the most influential of these are the reports issued by the United States Federal Reserve Bank (Fed). Understanding how the market will change because of these reports can help traders make more informed decisions.

The members of the Fed meet eight times a year and announce any changes to America’s key interest rate. Which has a big impact on currency values during one of those meetings.

There is a report called Non-Farm Payroll numbers, which is released each month on the first Friday. The value of the US dollar can change because of this report. And it might affect how much it costs to buy Swiss francs (CHF). This data can produce volatility in the value of USD and affect its pairing with CHF as well.

In general terms, movements in interest rates affect currency exchange rates. This is because if the Fed decides to decrease interest rates, this will make traders want to invest their money in America. This increases the demand for dollars. More people buy them and push the dollar’s value up.

The opposite happens when interest rates are increased. Investors sell their dollars to buy other currencies which offer more growth opportunities. This lowers the demand for dollars, so the dollar’s value goes down or stays at a steady rate.

Relating this, back to the reports by the Fed above. If there isn’t anything surprising about the meetings with the analyst, then there will be less impact on currency values.

This is because it can be hard to do strategies when many banks are doing the same thing. This can have a huge effect on the market.

How Does This Relate To USD/CHF?

If financial experts expect that the interest rates will go down, then USD will strengthen. This means that it will be more valuable against other currencies, including CHF.

If the key interest rates are not changing, then there will be no change in the USD/CHF or USD/EUR rates and currency pairings.

This can also mean that traders do not need to worry about fluctuations as much when trading from Swiss Francs into US Dollars.

US Dollars & Swiss Francs Currency Pairing History

The USD/CHF is one of the most common and well-known currency pairs in forex trading. The relationship between these two assets began in 1792 when the United States Congress created the US dollar as the country’s money. It’s a globally recognized legal tender in many countries. And it’s still considered the world’s unofficial reserve currency.

The Swiss franc dates back to 1795 when many different currencies were used in Switzerland at that time. Including French coins and those from nearby countries such as Italy and Germany.

To consolidate to a single currency, the Swiss franc was introduced by France as its official monetary unit. 1 French franc =4⅓ Swiss francs (SF). This rate quickly became the standardized exchange rate after 1800. In 1820, the SF was officially introduced as an official currency in Switzerland.

US Dollar & Swiss Franc Exchange Rates

The current exchange rates for the US dollar and the Swiss franc are below:

1 USD = 0.92 CHF (Swiss franc)

This currency pair is best explained via examples:

A contract that states USD 10,000 and 1 CHF (Swiss franc) will be exchanged for 9,230 CHF at a rate of 1 US$=0.92 CHF. This means that $10,000 USD = 9,230.70 CHF (Swiss Francs).

Explanation: The two currencies are worth almost the same, with a few scents of difference. But when you buy something in the US, and then need to change it into Swiss francs, the amount is less than if you convert Swiss francs to US dollars.

Best Time To Trade This Pair?

The best time to trade forex is when economic data and news announcements come out. These events cause volatility in the markets, and this means traders can make more money than during other times of the day.

In forex, there are many times throughout the day when the price of this pair will fluctuate. During market hours (usually from 8:00 AM to 5:00 PM in London), you may notice that there is (relatively) little change and trading volumes drop.

Between 8:00 AM and 10:30 AM in New York, however, prices may swing more drastically and activity may pick up. This effect may last until 2:15 PM New York time when traders go to lunch.

From 3:30 PM until about 5:00 PM or so, once again, there tends to be a dramatic decrease in volume and the volatility of USD/CHF. Between about 6:30 PM in New York and 11:00 AM in London, the price of this pair may change slightly, but with almost no trade volume.

When Should You Not Trade At All?

Trading is a skill that takes a lot of time and practice to master. If you do not have the required experience to trade, then you should avoid trading altogether.

For trading to be successful, one must know not only how to read charts but also how to react to changing market conditions. As well as foresee probable events that may affect price movements.

In addition, those who are new at trading should not try to make up for their losses with even riskier bets. Traders must know their limits before they lose all the money that they have worked hard for.

This part of the article will talk about things that will cause increased price movements, and when you should not trade at all.

  1. High Volatility

It’s not a secret that traders make the most money through a volatile market. Volatility means that the market is moving frequently enough for us to enter and exit our trades at profitable prices. 

Unfortunately, many new traders enter into trades late during high-volatile periods.

It may seem strange, but it is not a good time to trade when there are high levels of volatility.

  • Example:

Traders may have wanted to buy the AUD/NZD because it was getting close to hitting resistance. But they should have waited until after the BOE statement instead. This is because when GBP/USD finally broke through resistance, it went up in price by 24%.

  1. Immediately Before or After a Breaking News Event

This has a significant impact on currency prices and the market as a whole for several reasons. First, traders will react to what is happening in the news and attempt to forecast future price moves based on the information presented.

Because of this increased demand for currency pairs, prices will rise, resulting in a higher cost to buy said currency pair. Second, the value of stocks changes as people try to understand what is happening in the world. This leads to an increase in uncertainty. These changes happen quickly and rapidly.

  • Example:

Major events like central bank interest rate decisions are very important compared to other news movements. 

So they also contribute more to price fluctuation. During this time, it is best to just observe price action and wait for volatility to die down before entering trades.

  1. Monday’s & Friday’s

The first 24 hours of each new trading week are usually slow. The morning is when the markets are open. Investors have time to catch up from the weekend and see if there is any big economic news that happened during the weekend.

Just before the new week begins and first few hours on Monday tend to be some of the lowest-volatile periods of the week. It is not a good time to trade. 

There may have been opportunities for price changes, but now there are fewer. And when you do trade, it’s best not to do so on Mondays. Because prices go up little by little as the week goes on rather than increase dramatically.

  • Example:

The AUD/NZD went down for over two months. Then the Reserve Bank in New Zealand made a statement that people did not expect. This changed everything and it went up very quickly over the week. The worst time to trade AUD/NZD would have been on the first trade day or about 30 minutes before the event.

  1. Wrong Market Timing

The market opens at different times depending on where you live. What currency pair you are trading, and whether or not you’re trading during regular market hours.

Once your market opens, wait until after high-impact news has been released. And volatility has settled down before entering trades.

  • Example:

GBP/USD saw extremely high volatility leading up to, during, and after Brexit. Causing significant price movement around all hours of the day even though market open/close times are limited.

  1. When You Aren’t in the Appropriate State of Mind

Being in the right state of mind is crucial when learning how to trade. Because your emotions and feelings can be easily influenced during high-pressure situations. And will often dictate your decision-making process.

  • Example:

In this example, during heightened volatility, the EUR/USD increased from a low of 1.0826 up to a high of 1.0983 in only two hours with minimal retracement. Afterward signaling a lack of buyers along with sellers driving the market’s momentum.

Takeaway…

You may be eager to begin making money by trading forex but patience is one of the most important things you can have as a trader.

When you first start learning about trading, you mustn’t trade with real money. It’s best to use a demo account to learn how.

You will be better at trading when you use fake money on your demo account for learning. This way you can learn how to trade with real money and assets.

During this time, you should focus on the technical analysis indicators and see what they tell you. Look at the market from a few different perspectives.

When you become more comfortable trading, start practicing on a demo account. But don’t enter any trades yet! Keep looking at different markets. Be familiar with the opportunities that can arise.

Once you’ve built up enough experience and confidence, make your first real trade! Of course, you want to avoid risky behavior when you are trading during high volatility periods.

Witzeltrading.com

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