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How to trade seasonal patterns in Forex: EURCHF

November 05, 2019 13:40

After the announcement of QE-ternity from the ECB on September 12, while financial markets found some rest in the trade dispute between the US and China, the EURCHF traded back above 1.1000.

Still, technically the currency pair finds itself in a bearish mode on a daily chart with a potential short trigger around 1.1170/1200.

With that in mind, an upcoming seasonal bearish pattern in EURCHF looks very interesting.

This pattern has developed over the last 24 years between November 6 through November 12, and it delivers a chance for us to formulate an idea how to possibly trade the EURCHF.

Seasonal patterns in the EURCHF

The key parameter of this seasonal bearish pattern is as follows: between November 6 and November 12, EURCHF saw an average drop of 61 pips for 19 of the past 24 years.

In the remaining five years, it gained on average only 15 pips, with the maximum loss and maximum drawdown being 38 pips.

How to trade the Seasonal Pattern: EURCHF

And now the key question: how could we trade this?

Here's the plan:

  1. After identifying the profitable seasonal window, sell EURCHF on the closing price of the starting date on November 6 (21:59 CET).
  1. Identify the maximum loss within the seasonal period. Then, have a look at the daily chart and the ATR(14) indicator.
  • If the maximum loss is above the ATR(14) reading, round it up to the next round number and use it as worst-case-stop.
  • If the maximum loss is below the ATR(14) reading, use the ATR(14) as your stop-width (rounded up to the next round number).
  1. Look at the average gain of the seasonal pattern, and place the take profit at this distance from your entry point.
  1. If the trade is not stopped out or it does not reach its take profit within the seasonal period, end the trade market on the closing price on November 12.

Looking at current market data, since the ATR(14) in EURCHF on a daily time frame is currently trading around 45 pips and the maximum loss of the window being 38 pips, our worst-case stop will be placed based on the ATR(14) 45 pips away from our entry price.

Meanwhile, the average gain of the seasonal pattern is 61 pips within this period. So, after entering the trade on the closing price of November 6, we would subtract 61 pips to get our take profit level.

EURCHF Daily chart

Source: Admiral Markets MT5 with MT5SE Add-on EURCHF Daily chart (between 03 August 2018 to 01 November 2019). Accessed: 01 November 2019 at 09:00 AM GMT

Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2014, the value of the EURCHF fell by 11.9%, in 2015, it fell by 10.2%, in 2016 it fell by 3.2%, in 2017 it increased by 13.92%, 2018 it fell by 4.4%, meaning that after five years, it was down by 16.5%.

Check out Admiral Markets' most competitive conditions on EURCHF and start trading from as low as 3 ticks. To test Admiral Markets EURCHF offering in combination with the described strategy above register for a free demo account today and experience the live market risk free!

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