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I have some reasons to believe that going long on EUR/CHF is a very good Idea in the long term (above 3 months).
Take a look at them, and lets have a green full discussion .
1) The stress in the euro area is fading away, slowly but steadily
as said by Societe Generale
This is good for EUR(not EUR/USD) in the long term
At the same time not so good for CHF, Which gains when risk aversion flares up.
Traditionally USD, CHF and JPY enjoy the safe haven tag.
But lately the BOJ decision to have a weaker yen took the sheen away from JPY.
And USD will only become more attractive as the tapering measures unwind.
2) Swiss Franc is supported by big current account surplus (10.25% of GDP)
A large part of this inflow is through the banking sector.
The image below clearly shows how closely the current account surplus and the banking sector are related.
During the 2008 banking sector collapse, the current account surplus went negative.
But it will be very difficult for the banking sector to bring in cash at such too low interest rates in the future.
There is no reason for an U.S investor to move to Switzerland, when he will get better rates at home after the tapering ends.
The main reason Switzerland was able to get large sums of money at very low interest rates was because of their secrecy laws.
But now things have changed completely, Switzerland has signed TIEAs with almost all big countries.
Now if you want to hide money, Switzerland is the last place you want to go.
This is what i got, when i googled about Switzerland as a tax haven
3) SNB keen to have a weaker CHF
The export growth of Switzerland is lagging and the import prices are deflating.
Swiss inflation is the lowest in G10.
(Then why don't they raise the interest rates, that will also help the current account surplus ?! But they won't and even if they do! it won't help. Lets discuss that in the comment box. )
Keeping this mind SNB shall be determined to keep the floor of 1.20, that they have confirmed recently.
In fact SNB is ready and capable to intervene, more than ever. Their Foreign currency reserves are brimming and almost half of it is in EUR .
Switzerland has the highest amount of foreign exchange reserves as percentage of their GDP.
So if you think, can SNB do whatever he wants ?, the answer is - of course they can !
4) The real effective exchange rate of CHF is still too high, when compared with the last decade's average.
The post-EMU crisis shocks haven't been corrected completely. CHF is still catching up.
I think EUR/CHF is a low risk long term investment.
If you are looking to go long, at least give it more than 3 months, staying in for year and a half is a good idea.
What leverage should you use?
Instead of thinking in terms of leverage, I think it is a good Idea to think in terms of risk and reward.
I think TP should be around 1.3 and stop loss should be just below 1.2
There are three things to decide :
1) How sure are you about the trade, do you think the stop loss will be triggered. In this case, I don't think so.
Probability of EUR/CHF to fall below 1.2 is very less.
2) Now keeping this in mind, decide how much can you afford to lose in an event with the above probability.
3) After this, it doesn't matter how much leverage you choose. YES, it doesn't matter if you trade with leverage 500:1 or 1:1.
What matters is how much are you willing to lose.
I am fed up of people yelling about leverage and saying it is a bad thing.
It is just a tool, it lets you borrow money from the broker. So that you don't have to deposit the unnecessary money.
What is this unnecessary money in your account?
It is the money you won't lose anyway. Remember you don't trade with the deposit,
you trade with the amount you have decided to risk.
EXAMPLE :
CASE 1: You have 100, 000 dollars in your account. You decide to risk only 1% of the account and get into a trade with a given risk reward ratio.
CASE 2: You have 10,000 dollars in your account. You decide to risk only 10% of the account and get into a trade with the same given risk reward ratio.
The profit and loss that you will generate will be the same in the two accounts.
Because in both cases you are risking 1000 dollars.
Leverage allows to keep the rest of the 90, 000 dollars safely in your bank account .
Which you can deposit, if you loose some money in the trading account or you may want to risk more.
Keeping less money in the trading account also keeps you protected from the unwanted gambling mood swings, common guys, we all get them.
THE RISK THAT YOU TAKE HAS NOTHING TO DO WITH LEVERAGE.
IT DEPENDS ON :
1) THE TRADE YOU MAKE
a) Volatility of the Instrument [Take note of the market volatility while placing stop losses]
b) Accuracy of your analysis. [VERY IMPORTANT, this is what the market pays you for]
c) Risk-Reward ratio
[Note that: Having a good risk-reward ratio won't make you more money, It may or may not]
2) Amount of money that you are risking
I know its a very interesting part of Fx Trading, would love to discuss more on this.
Getting back on the topic,
If you do hop in the wagon, please, please, and for Higgs Boson's Sake don't get out the trade with immature profits.
I have done this countless times, to learn this :
As a trader we wait eagerly for our trades to show results, We start to lose hope, especially with the long term trades.
We start thinking about the negative reasons, by the time the trades start to show effect after 3-4 months we have developed a negative bias against the trade, and as soon as we see some profit we just grab and run away.
In reality, the first small profit that you make is just the sign of confirmation. Instead of grabbing that small profit, go outside and grab a beer and relax, your work is done and now let the market work for you.
The two most breathtaking(literally) views a trader can have :
You are wrong, The market is rallying against you.
You were right, The market is rallying, you are not in the trade
In short, do the following,
Do the analysis or in this case understand my analysis.
Decide how much you want to risk.
Keep the stop loss and Take profits.
Forget about it, Unless a new fact emerges which changes the analysis.
If you decide to go long for EUR/CHF, it will be a good idea to subscribe me.
Because I am long too!, and i will posting on my blog about any developments on this pair.
____________________________________________________________________________
The topic of my next article will be ZERO SUM RULE OF THE MARKETS AND THE FLOW OF MONEY
Read this story to make some sense. Comments are most welcome, I will use those ideas in my next article
Long time ago, a man visited a village of LALACHPUR and announced to the villagers that he would buy cats for $1 each.
The greedy villagers caught the cats and sold them for a dollar.
The man bought hundreds at $1 and as supply started to diminish, the villagers got lazy.
He then announced that he would now buy them at $2. This renewed the efforts of the villagers and they started catching and selling cats again.
Soon the supply diminished even further. The offer increased to $5 each and the cats became rare.
The man now announced that he would buy cats at $10!
However, since he had to go to the city on some business, his boyfriend would now buy on behalf of him.
In the absence of the man, the boyfriend told the villagers; "Look at all these cats in the big cage. I will sell them to you at $7 and when my man returns from the city, you can sell them to him for $10 each."
The villagers rounded up with all their savings and bought all the cats.
They never saw the man and his boyfriend again.
Do you think, this is how the markets work?!
Note : I may not think, this is how markets work, I am hoping to get some views of some smart people.
Take a look at them, and lets have a green full discussion .
1) The stress in the euro area is fading away, slowly but steadily
Systemic risk has faded in the euro zone, and further progress will be made to tackle the solvency issues of euro zone countries, the Swiss franc should lose its appeal as an alternative investment,
as said by Societe Generale
This is good for EUR(not EUR/USD) in the long term
At the same time not so good for CHF, Which gains when risk aversion flares up.
Traditionally USD, CHF and JPY enjoy the safe haven tag.
But lately the BOJ decision to have a weaker yen took the sheen away from JPY.
And USD will only become more attractive as the tapering measures unwind.
2) Swiss Franc is supported by big current account surplus (10.25% of GDP)
A large part of this inflow is through the banking sector.
The image below clearly shows how closely the current account surplus and the banking sector are related.
During the 2008 banking sector collapse, the current account surplus went negative.
But it will be very difficult for the banking sector to bring in cash at such too low interest rates in the future.
There is no reason for an U.S investor to move to Switzerland, when he will get better rates at home after the tapering ends.
The main reason Switzerland was able to get large sums of money at very low interest rates was because of their secrecy laws.
But now things have changed completely, Switzerland has signed TIEAs with almost all big countries.
Now if you want to hide money, Switzerland is the last place you want to go.
This is what i got, when i googled about Switzerland as a tax haven
3) SNB keen to have a weaker CHF
The export growth of Switzerland is lagging and the import prices are deflating.
Swiss inflation is the lowest in G10.
(Then why don't they raise the interest rates, that will also help the current account surplus ?! But they won't and even if they do! it won't help. Lets discuss that in the comment box. )
Keeping this mind SNB shall be determined to keep the floor of 1.20, that they have confirmed recently.
In fact SNB is ready and capable to intervene, more than ever. Their Foreign currency reserves are brimming and almost half of it is in EUR .
Switzerland has the highest amount of foreign exchange reserves as percentage of their GDP.
So if you think, can SNB do whatever he wants ?, the answer is - of course they can !
4) The real effective exchange rate of CHF is still too high, when compared with the last decade's average.
The post-EMU crisis shocks haven't been corrected completely. CHF is still catching up.
I think EUR/CHF is a low risk long term investment.
If you are looking to go long, at least give it more than 3 months, staying in for year and a half is a good idea.
What leverage should you use?
Instead of thinking in terms of leverage, I think it is a good Idea to think in terms of risk and reward.
I think TP should be around 1.3 and stop loss should be just below 1.2
There are three things to decide :
1) How sure are you about the trade, do you think the stop loss will be triggered. In this case, I don't think so.
Probability of EUR/CHF to fall below 1.2 is very less.
2) Now keeping this in mind, decide how much can you afford to lose in an event with the above probability.
3) After this, it doesn't matter how much leverage you choose. YES, it doesn't matter if you trade with leverage 500:1 or 1:1.
What matters is how much are you willing to lose.
I am fed up of people yelling about leverage and saying it is a bad thing.
It is just a tool, it lets you borrow money from the broker. So that you don't have to deposit the unnecessary money.
What is this unnecessary money in your account?
It is the money you won't lose anyway. Remember you don't trade with the deposit,
you trade with the amount you have decided to risk.
EXAMPLE :
CASE 1: You have 100, 000 dollars in your account. You decide to risk only 1% of the account and get into a trade with a given risk reward ratio.
CASE 2: You have 10,000 dollars in your account. You decide to risk only 10% of the account and get into a trade with the same given risk reward ratio.
The profit and loss that you will generate will be the same in the two accounts.
Because in both cases you are risking 1000 dollars.
Leverage allows to keep the rest of the 90, 000 dollars safely in your bank account .
Which you can deposit, if you loose some money in the trading account or you may want to risk more.
Keeping less money in the trading account also keeps you protected from the unwanted gambling mood swings, common guys, we all get them.
THE RISK THAT YOU TAKE HAS NOTHING TO DO WITH LEVERAGE.
IT DEPENDS ON :
1) THE TRADE YOU MAKE
a) Volatility of the Instrument [Take note of the market volatility while placing stop losses]
b) Accuracy of your analysis. [VERY IMPORTANT, this is what the market pays you for]
c) Risk-Reward ratio
[Note that: Having a good risk-reward ratio won't make you more money, It may or may not]
2) Amount of money that you are risking
I know its a very interesting part of Fx Trading, would love to discuss more on this.
Getting back on the topic,
If you do hop in the wagon, please, please, and for Higgs Boson's Sake don't get out the trade with immature profits.
I have done this countless times, to learn this :
As a trader we wait eagerly for our trades to show results, We start to lose hope, especially with the long term trades.
We start thinking about the negative reasons, by the time the trades start to show effect after 3-4 months we have developed a negative bias against the trade, and as soon as we see some profit we just grab and run away.
In reality, the first small profit that you make is just the sign of confirmation. Instead of grabbing that small profit, go outside and grab a beer and relax, your work is done and now let the market work for you.
The two most breathtaking(literally) views a trader can have :
You are wrong, The market is rallying against you.
You were right, The market is rallying, you are not in the trade
In short, do the following,
Do the analysis or in this case understand my analysis.
Decide how much you want to risk.
Keep the stop loss and Take profits.
Forget about it, Unless a new fact emerges which changes the analysis.
If you decide to go long for EUR/CHF, it will be a good idea to subscribe me.
Because I am long too!, and i will posting on my blog about any developments on this pair.
____________________________________________________________________________
The topic of my next article will be ZERO SUM RULE OF THE MARKETS AND THE FLOW OF MONEY
Read this story to make some sense. Comments are most welcome, I will use those ideas in my next article
Long time ago, a man visited a village of LALACHPUR and announced to the villagers that he would buy cats for $1 each.
The greedy villagers caught the cats and sold them for a dollar.
The man bought hundreds at $1 and as supply started to diminish, the villagers got lazy.
He then announced that he would now buy them at $2. This renewed the efforts of the villagers and they started catching and selling cats again.
Soon the supply diminished even further. The offer increased to $5 each and the cats became rare.
The man now announced that he would buy cats at $10!
However, since he had to go to the city on some business, his boyfriend would now buy on behalf of him.
In the absence of the man, the boyfriend told the villagers; "Look at all these cats in the big cage. I will sell them to you at $7 and when my man returns from the city, you can sell them to him for $10 each."
The villagers rounded up with all their savings and bought all the cats.
They never saw the man and his boyfriend again.
Do you think, this is how the markets work?!
Note : I may not think, this is how markets work, I am hoping to get some views of some smart people.
