USDCHF 123 Pattern Swing Trade That Made 61% Return In 6 Days

USDCHF had burned many traders in the month of January this year. USDCHF fell like a stone around 1800 pips in just 1-2 minutes blowing the accounts of many traders. A number of brokers went belly up when they had to take the losses themselves. This illustrates the importance of risk management. Those brokers who were lax in risk management suffered big losses that includes FXCM. FXCM suffered a loss of around $300 million that day but survived. It was the day when the stop losses didn’t get triggered. Why? Market moved so fast liquidity dried up and brokers were not willing to take the orders. So you should keep this in mind.

Stop losses only work when the market is functioning well and brokers are performing their role as the market maker. When the market maker himself is in trouble forget about stop loss triggering and you saving your face. This is an important lesson for all those who trade. Never get caught on the wrong side of the market. Stop loss doesn’t work all the time. There were a few lucky traders who made a cool 1800 pips on that day. One day opened the sell trade and went to work. In the night when he opened MT4, he had a cool 1800 pip profit sitting. He thanked the market and went to sleep happily.

Now let’s get back to our USDCHF swing trade. Take a look at the following USDCHF H4 chart!

USDCHF Swing Trade

We spotted the 123 pattern. You can clearly see the 123 pattern clearly marked in the above chart. 123 means the price makes a low then goes above makes and high and again makes a low which is above the previous low. What this means is that price has found support at the 1 level and couldn’t come near it the second time. 123 is an important trend reversal pattern. It means the start of a new trend.

So we make an entry at the close of the bullish candle at 3. Our entry is 0.95176 and the stop loss is 0.94900. So the risk is 37 pips. Suppose we have $1000 in our account. We open the trade with 0.1 lot and our risk will be 3.7% which is pretty high by our standards as we don’t risk more than 2%.

We open a second position 0.1 lot just above the red arrow at 0.96062 and the move the stop loss to 0.95700. The risk for the second position is 36 pips once again. If the stop loss gets hit, the first position will make 53 pips. So we end with a net profit of 17 pips. Our trade is now risk free. We close the trade at 0.98706. So the profit for the first position is 353 pips or $353. The profit for the second position is 264 pips or $264. So the total profit is $617. The trade continued for 6 days so we made a return of 61% in those 6 days.

As said above, the risk was 3.7%. The max limit for the risk that we have set is 5%. It depends on your risk appetite and level of confidence how much risk you want to take. This time we took a risk of 3.7%. Risk management is what will make you a successful trader in the long run.