Tuesday, September 6, 2011

EURCHF - unprecedented move!

As I woke up to see that the EURCHF pair was up over 900 pips, I thought it was a misprint.  Then I knew it must have been some big news related move -- which ended up being the case.  The Swiss National Bank (SNB) pegged the Swiss Franc to the Euro at 1.2000 - they didn't want their currency to become a safe haven and thus potentially harm their economy.

So until another Soros comes by and breaks the SNB...goodbye EURCHF as a great trading vehicle.

Unprecedented move

In a span of about 15 minutes, the pair moved nearly 1000 pips, overshooting the peg by almost 200 pips, before finally settling down around the peg level of 1.2000.  In short, it was literally an unprecedented move.  Back on October 24, 2008 during the financial crisis, there was a 450 pip move that took place over a period of a couple hours, but in comparison, today's move took place in only minutes and was well over twice as large.

Trade Summary

I was very comfortable with the entry I had as well as how this trade was progressing.  But in the end, I exited this trade with a net 30 pip loss. After being up nearly 800 pips, it really highlights the importance of 1) having stop loss in place for these unexpected events, and 2) especially having the stop loss at the proper level to lock in profits.

I let this one "breath" a little too much, unlike many of my equity day trades where I'm stopped out by 1 tick.  I had a dream last night that I should have lowered my stop just above the break of 2 key resistance areas, as shown in the chart below.  Perhaps I would have slept better if I had done that!

EURCHF - 60 min - 9/6/2011
What did I learn?
  • Proper stop placement prior overnight is essential. These European currency pairs usually start moving during the 3:00 AM Eastern time hour since that's the start of business in Europe.  I got sloppy, and didn't bring down my stop last night.  This cost me at least 400-500 pips of profits, depending on slippage.  I didn't think this pair could move 500 pips overnight, but I was obviously wrong!
  • Scaling out ended up helping more than expected.  Since I took profits on 1/2 of my position at 100 pips and brought down my stop loss to "lock in" about 25 pips of profits, even with the slippage I received on my remaining position, I still nearly broke even on this trade. When I was up 600 pips, I had a thought about how nice it would have been to not have scaled out, but that's no longer the case!
  • Forex slippage can be huge.  My stop was placed at 1.1660 but my fill was 1.1810, a slippage of 150 pips.  Under ordinary conditions, the spread for this pair is about 5 pips, and slippage for adverse fills might be double or triple that. 
Moving on
On a more psychological note, when I saw that the EURCHF was up over 900 pips this morning after waking up, I didn't really feel very disappointed or shocked that I left a lot of money on the table.  I was more interested in what had happened and how I could have traded this better.  I knew my stop loss was in place (although not at the optimal place), and so I had some profits locked in (although in reality, the slippage ended up generating a small net loss).

At this time in my development as a trader, I am much more interested in going through as many adverse and unusual conditions as possible.  This way, I can experience how I handle the situation (i.e. how well I stick to my plan) and then most importantly, learn from the experience.  I want true battle situations -- let the markets try and knock me out.  Give me the battle scars, because this will only make me stronger and more resilient.  The next time this situation comes up, I will be prepared.

Now that I've written all I can about this trade, it's time to move on to the next opportunity.  Next!


Tomross58 said...


Great post and especially the last paragraph. I read something when I first started that didnt make sense to me but now I can see the point. The comment was that amature traders trade to make money and professional traders trade to make good trades. Its not a word for word quote but I think the point can be seen. Dont get me wrong,,,I am not consistantly profitable but as I trade and see how I handle situations and where I can improve I am slowly gaining confidence. Keep it up as will I.


Grove Under said...

Thanks very much for the feedback. Not sure if you already read the book, but for me, "One Good Trade" really hammered home the concept of trading the plan, and being patient for YOUR setup to appear. I probably need to go back and read it again!