Today our focus will be on quite an exotic currency pair, the AUD/CHF.
Even though we know the window before Christmas to be more than likely bullish, indicating that a "risk-measure" currency pair like the AUD/CHF should be expected to solidly perform during the weeks before Christmas, the AUD/CHF has, in fact, developed a bearish tendency in those weeks.
The seasonal bearish pattern has developed over the last 24 years, during the time span between November 29 and December 17, and delivers a chance for us to formulate a strategy to trade the AUD/CHF here.
The Seasonal Pattern in the AUD/CHF
The key parameter of this seasonal bearish pattern is: between November 29 and December 17, the AUD/CHF saw an average drop of 166 pips for 18 of the past 24 years.
In the remaining six years, it gained on average only 74 pips, while the maximum loss was 151 pips and the maximum drawdown being 171 pips.
Trade the Seasonal Pattern: AUD/CHF
And now the key question: how could we trade this?
Here's the plan:
- After identifying the profitable seasonal window, sell the AUD/CHF on the closing price of the starting date on November 29 (22:59 CET).
- 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).
- Look at the average gain of the seasonal pattern, and place the take profit at this distance from your entry point.
- 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 December 17.
Looking at current market data, since the ATR(14) in the AUD/CHF on a daily time frame is currently trading around 42 pips and the maximum loss of the window being 151 pips, our worst-case stop will be placed based on the ATR(14) 150 pips away from our entry price.
Meanwhile, the average gain of the seasonal pattern is 166 pips within this period. So, after entering the trade on the closing price of November 29, we would subtract 166 pips to get our take profit level.
Source: Admiral Markets MT5 with MT5-SE Add-on AUD/CHF Daily chart (between August 8, 2018, to November 22, 2019). Accessed: November 22, 2019, at 21:30 GMT - Please note: Past performance is not a reliable indicator of future results, or future performance.
In 2014, the value of the AUD/CHF increased by 2.0%, in 2015, it decreased by 10.2%, in 2016, it increased by 0.8%, in 2017, it increased by 3.3%, in 2018, it decreased by 8.9%, meaning that after five years, it was down by 13.1%.
Check out Admiral Markets' most competitive conditions on the AUD/CHF and start trading from as low as 3 ticks only. To test Admiral Markets AUD/CHF 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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