We like to take a contrarian view on retail trader market sentiment, with most retail traders being strongly bullish on this pair we are thus looking to go short. Going short at this area is very plausible because the trend is down. Furthermore, there is evidence that this will be a powerful rejection because these two currencies' strengths are different and diverging(4h, D) in strength; one must establish strength over the other. In this case CHF is strong, and so we want to sell USD. We all know currencies hate being strong or weak together, one must dominate the other, we are looking for CHF to show some strength to also feel comfortable with going long.
To confirm entry into this trade we are going to look at price action(nice rejection of area) + similar rejection on USDCHF's strongest correlated pair, USDCAD and EURUSD; on approach to area we want to see structure to the left of EURUSD's and USDCAD's chart to show that not only is this a place sellers come in but a TIME sellers come in. A forex chart is a 2D chart; it has time and price (when and where)
*bold means checked Things that make this trade powerful:
*Risk reward of 1:2 = we need to be right 33% of the time which is about how much a market trend and we are trend traders.
[*]Trend= We figure out the dominant trend to increase our odds since the market trends 30% of the time. Being with the trend increase odds of success by 15%
Price action = a rejection of the area.
Retail trader market sentiment = Taking a contrarian view on market sentiment which gives us a short bias.
Currency strength convergence = Big move coming to decide which currency is strongest.
Correlation = When USDCAD reaches this area we are looking for a similar structure on EURUSD to know the time and place too long on the chart.
This list is not a checklist, it is merely a list of the order of importance to getting into this trade.
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