CHFJPY Trading Strategy

CHFJPY Trading Strategy – Rules, Backtest, Performance

While there are many currency pairs you can trade in the forex market, a CHFJPY trading strategy would allow you to get the best out of the CHF and JPY markets. If you know how to get it right, the CHFJPY currency pair provides enough liquidity and volatility for profitable trading. So, what’s your CHFJPY trading strategy?

A CHFJPY trading strategy is the method you use to profit from the CHFJPY currency pair. To profit from any market, you should have a rule-based system that specifies when to trade the currency pair, the market conditions that must be met, the entry setup that triggers you into a trade, position sizing, risk management, and exit criteria. Without a robust strategy for the market you are trading, it’s not possible to succeed in trading forex.

In this post, we examine the CHFJPY currency pair: what the currency codes mean, the factors that affect the currencies, when and how to trade the pair, and more. Keep reading!

Table of contents:

CHFJPY trading strategy – trading rules, backtest, returns, and performance

Relevant articles:

We start the article with an example of a CHFJPY trading strategy.

Let’s go straight to the trading rules (members can unlock the trading rules and get trading rules for hundreds of trading strategies):

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The data for the backtest is free and taken from Yahoo finance. The ticker symbol on YF: “CHFJPY=X”

The equity curve of the trading strategy looks like this:

CHFJPY trading strategy
CHFJPY trading strategy

The trading statistics and performance statistics read like this:

  • Total Trades: 64
  • Time Spent In The Market: 42.20%
  • CAGR: 3.51%
  • Risk-adjusted return: 8.31%
  • Win Rate: 79.69%
  • Average Win: 2.55%
  • Average Loss: -3.98%
  • Max Drawdown: -19.04%

The CAGR is low, but this is to be expected. Forex is a zero-sum game, and you don’t have a tailwind like in stocks and gold.

Why did we choose the parameters we did? To better understand if the strategy is a result of luck and randomness, let’s look at the optimization of the only parameter in the strategy:

CHFJPY trading strategy optimization
CHFJPY trading strategy optimization

CHFJPY trading strategy – complete Python code

We end the backtest with the complete Python code:

THIS SECTION IS FOR MEMBERS ONLY. _________________ BECOME A MEBER TO GET ACCESS TO TRADING RULES IN ALL ARTICLES CLICK HERE TO SEE ALL 350 ARTICLES WITH TRADING RULES

We remind you that we have also a backtested cadjpy forex trading strategy.

What does CHF mean?

CHF is the short form for Confoederatio Helvetica franc, with Confoederatio Helvetica being the Latin name for the Swiss Confederation. Thus, CHF is the currency code for the Swiss franc, which is the official currency of Switzerland and Liechtenstein, as well as the Italian exclave of Campione d’Italia. The currency is issued by the Swiss National Bank.

In the CHFJPY currency pair, it is the first currency code, so it is the base currency. This means that it is the currency whose value is quoted in Japanese yen.

What does JPY mean?

JPY is the currency code for the Japanese yen, which is the official currency of Japan. In the CHFJPY currency pair, it is the second currency code, so it is regarded as the quote or counter currency. This means that it is the currency that is used to determine the value of the Swiss franc.

What is CHFJPY trading?

CHFJPY trading is the process of buying Swiss franc (CHF) with Japanese yen (JPY) or selling the CHF to get JPY. Since CHFJPY is a cross pair, CHFJPY trading is a net position formed by simultaneously selling USDCHF and buying equivalent value in USDJPY or vice versa.

A long CHFJPY position (selling JPY to buy CHF) is achieved by buying USDJPY (selling JPY to buy USD) and, at the same time, selling USDCHF (selling the USD to buy CHF). Likewise, a short CHFJPY position (selling CHF to buy JPY) is achieved by simultaneously buying USDCHF and selling USDJPY — that is, using CHF to buy USD and then selling the USD to buy JPY.

While businesses that are involved in international trade between Japan and Switzerland may engage in CHFJPY trading for business purposes or to hedge their exchange rate exposure, retail and institutional traders, engage in CHFJPY trading to speculate on the exchange rate of the CHF against the JPY and profit from any price movement.

What is the best time to trade CHFJPY?

The best time to trade CHFJPY depends on your trading style. If you are a swing or position trader, the best time of the day or the trading session to trade this currency pair doesn’t matter because you would hold your position for many days, weeks, or months.

However, for intraday trading, such as scalping or day trading, the best time to trade CHFJPY is during the Asian and European sessions. During the Asian session (often from 23:00 to 06: 00 GMT), the Japanese market is open, providing liquidity for trading in the currency pair.

Similarly, during the European session (often from 08:00 to 16:00 GMT), the Swiss market is open and provides liquidity for trading in the currency pair.

What is the prediction for CHF to JPY?

The prediction for CHF to JPY will depend on the demand and supply of CHF and JPY against each other. To know when to sell from CHF to JPY, you have to learn the fundamental factors that affect the demand and supply of these two currencies and also learn how to analyze the price charts to know when the price of CHFJPY is likely to start moving down.

We would argue that the best approach to trading is a rule-based trading system based strictly on quantified backtesting.

What affects CHFJPY?

Some of the factors that affect CHFJPY include the interest rates set by the Swiss National Bank and the Bank of Japan.

Huge interest rate differentials will lead to carry trades — investors borrowing from the currency with the least interest rate to invest in the currency with a high interest rate. Other factors are unemployment rates, wages reports, inflation rates, the Gross Domestic Product (GDP) growth rates, and political events like elections.

What is the best session to trade CHF pairs?

The best session to trade CHF pairs may not matter if you are a swing trader or position trader. But if you are an intraday trader, the best session to trade CHF pairs is during the European sessions. During the European session, which often lasts from 08:00 to 16:00 GMT, the Swiss market is open and, as such, provides enough liquidity for trading in CHF pairs.

Other good sessions would be any session where the market of the other component of the CHF pair is open.

Why is CHF and JPY safe haven?

The CHF and JPY are considered safe havens because these currencies have strong liquidity, and the Swiss and Japanese economies experience relatively low inflation. Also, these currencies tend to have a low or negative correlation with the performance of stocks and bonds, which makes them quite effective for hedging against market downturns.

And the relatively stable political systems in both countries ensure that investors are not taken unaware by political events.

What correlates with CHFJPY?

A few currency pairs have demonstrated some levels of correlation with the CHFJPY pair. Some of them are EURJPY, GBPJPY, AUDJPY, XAUJPY, and NZDJPY.

These pairs correlate at various degrees; sometimes, up to +90% (+0.9). When such a strong correlation occurs, opening a position in both currency pairs may come with a lot of risks as it would almost be equivalent to carrying a double position in any of the pairs. This is because whatever affects one is 90% likely to affect the other ones.

Why is yen risk off?

Yen is considered risk-off because, over the years, Japan has had a current account surplus—that is, it exports more than it imports.

Generally, Japan owns more foreign assets than it owes. It has a stable democratic government and a robust banking and financial system. Also, the country is struggling with low inflation.

All these offer investors some form of safety for their funds during periods of economic unrest.

Why consider CHFJPY trading in your investment portfolio?

The reason to consider CHFJPY trading in your investment portfolio is that both the Swiss franc and Japanese yen are major currencies owned by strong economies. Given their unique characteristics and low interest rates, the CHF and JPY are considered safe haven and funding currencies.

Investors flock to them during periods of global economic uncertainty or to position themselves for carry trade with a currency of high interest rates like the Aussie or Kiwi.

How to analyze CHFJPY trading trends effectively

To effectively analyze CHFJPY trading trends, you need to know how to read the market structure and understand the various price swings on the chart. Trends in any market, including the CHFJPY market, have two basic types of price swings: impulse swings and pullback (correction) swings.

The impulse swings are bigger and move in the direction of the trend, making a series of higher highs if it is an uptrend or lower lows if it is a downtrend. The pullback or correction swings move against the trendy, ending as higher lows if it is an uptrend or lower highs if it is a downtrend.

To identify a trend, you need to see a series of impulse and correction swings that define a particular trend. If you have a series of higher highs and higher lows, then you’re dealing with an uptrend. On the other hand, if you see a series of lower lows and lower highs, it is a downtrend.

What are the key factors influencing CHFJPY exchange rates?

Many factors influence fluctuations in the USDCAD pair, including fundamental and technical factors, as well as market sentiments. Some of the fundamental factors that influence the USDCAD pair are:

  • The interest rate decisions by the Swiss National Bank and the Bank of Japan
  • Unemployment rate reports in Switzerland and Japan
  • Inflation rates report
  • Wages reports
  • Money supply and other interventions by the Swiss National Bank and the Bank of Japan
  • The Gross Domestic Product (GDP) growth rates
  • International trade agreements
  • Balance of payments
  • Geopolitical events

However, most of the macro news is pretty random. Again, we believe the best approach is to backtest using quantified trading rules.

How does geopolitical news impact CHFJPY trading?

Geopolitical news impacts CHFJPY trading by causing high volatility in the market as with trading any other currency pairs. However, predicting the extent of the impact may be difficult. This would depend on the nature of the geopolitical news, the country/countries involved, and the threat investors and traders believe the crisis poses to their portfolios. Such news is pretty much random.

Generally, events that seem global would lead investors rushing to move their holding into safe-haven currencies like the CHF and JPY, leading to high liquidity and volatility in CHFJPY trading. But even an event affecting just one country can influence traders to instead move their holdings to safe-haven CHFJPY trading.

What are the common pitfalls to avoid in CHFJPY trading?

The common pitfalls to avoid in CHFJPY trading include:

  • Not having a trading strategy or trading with a strategy that has not been backtested and proven to have an edge in the market.
  • Trading without an adequate risk management plan
  • Risking too much per trade because you think your strategy is great
  • Allowing your emotions to rule your trading decisions
  • Not keeping a trading journal
  • Not getting trading education first before embarking on your trading journey

Trading is not easy, and you need to make a solid trading plan. That requires time. If you are not willing to spend the time to learn to trade, then you better not do it! Trading is no way to easy riches – far from it.

How to develop a successful CHFJPY trading strategy?

To develop a successful CHFJPY trading strategy, you need to take a lot of things into account. The first thing is to formulate a potential trading idea and the conditions where it could work.

Next, you refine it, specifying the criteria to enter and close a trade, as well as your position sizing and risk management approach. After that, you find a way to backtest and forward-test the strategy. If the strategy has positive expectancy, you may go ahead to trade it live — start with a small account first before gradually increasing your account size.

What are the best indicators for CHFJPY trading analysis?

The best indicators for CHFJPY trading analysis would depend on your CHFJPY trading strategy. Different indicators can work well when used the right way. So, the first thing is to know how you want to trade: trend following, momentum trading, or mean reversion.

If you’re a mean-reversion trader, RSI or Bollinger Bands can be very useful, but if you’re a trend follower, you can use the moving average indicator to perform your analysis.

Also, the best indicators depend on the asset you are trading. RSI has worked very well for stocks since the 1980s but less for forex. There is only one way to find out: to backtest! If you are new to backtesting, please check out our comprehensive backtesting guide.

How to manage risk effectively in CHFJPY trading?

To effectively manage risk in CHFJPY trading, you must have a risk management plan as a part of your trading plan.

Your risk management plan must include your position sizing and the use of hard stop loss. While position sizing helps you reduce how much you risk and the amount of leverage you use, your stop-loss order ensures that your loss is limited to the amount you planned to lose if the trade goes against your position.

Here is the formula for determining your risk, stop loss level, and position size:

Amount to risk = Position size X Stop Loss (in pips) X Pip Value

What are the most popular CHFJPY trading strategies?

The most popular CHFJPY trading strategies are:

  1. Trend-following strategies: You can use these strategies if the CHFJPY is trending in a particular direction. Examples include moving average crossovers and the 20-period breakout strategy
  2. Mean-reversion strategies: These strategies are best used if the CHFJPY is moving sideways or swinging nicely around a mean. You try to buy at oversold levels and sell at overbought levels.
  3. Momentum strategies: You use momentum strategies to trade the impulse swing of a trending market after a pullback.

How to choose the right timeframe for CHFJPY trading?

To choose the right timeframe for CHFJPY trading, you have to know your trading personality and the style of trading that suits you.

If you’re the type that likes to enter the market and get out in no time, probably within a session or at most before the end of the trading day, you may want to choose lower timeframes like the 15-minute to 1-hour timeframes.

But if you like to hold your trade for several days, you may want to use higher timeframes like the daily and 4-hourly timeframe. If you prefer position trading, check out weekly and daily timeframes.

What are the benefits of using technical analysis in CHFJPY trading?

The benefits of using technical analysis in CHFJPY trading are numerous.

One of them is that technical analysis can help you determine when a price move is about to take place so that you enter the market at the right time. Even if you use fundamental analysis to seek potential market direction, technical analysis can help you in timing your entry.

But if you are using technical analysis, it might be a good idea to put down the trading rules into quantifiable trading rules so you can backtest them.

How does interest rate differentials affect CHFJPY trading?

Interest rate differentials can affect CHFJPY trading if it provides an opportunity for carry trade — a form of trade where long-term traders borrow in a low-interest-rate currency (say, the JPY) to invest in a relatively higher-interest-rate currency (say, the CHF).

If there are changes in interest rate differentials with market sentiment towards carry trades, it can affect the demand and supply dynamics of the two currencies involved, and thus, affect the price movement.

What role does market sentiment play in CHFJPY trading?

Market sentiment plays a big role in CHFJPY trading, as it shows traders’ risk appetite and determines how they behave in situations of extreme uncertainty. When there is a huge global event like war, investors rush to safe-haven assets, like CHF and JPY, thereby increasing the liquidity in the CHFJPY market.

How to stay updated with CHFJPY market developments?

To stay up to date with CHFJPY market developments, you have to keep an eye on market news channels like Bloomberg, CNBC, and so on, as well as on forex websites like Forexfactory, Investing.com, therobusttrader.com, and quantifiedstrategies.com.

Your trading platform may also have a news stream. Make a habit of checking the news section of your trading platform.

What elements constitute a CHFJPY trading strategy?

The elements that constitute a CHFJPY trading strategy include:

  • The market condition — whether the market has to be trending or moving sideways
  • The time to trade — whether it is in a specific trading session like the Asian session or European session
  • The entry criteria
  • The amount to risk and position size
  • Stop loss and profit target
  • The exit criteria

How does one develop a currency pair trading plan?

To develop a currency trading plan, you have to know the currency pair you want to trade, the market conditions that have to be met, and the timeframe you would look for trading setups.

You should formulate and backtest a trading strategy and be sure it has a positive expectancy. Also, you need to create your risk management plan, which specifies how much you risk per trade and your use of stop-loss orders. Finally, you must create a journaling plan and when to review your trades and your performance to know what needs fixing.

What are the key considerations when implementing a Swiss franc Japanese yen trading approach?

The key considerations when implementing a Swiss franc Japanese yen trading approach are economic indicators from Switzerland and Japan, geopolitical news from around the world, and technical analysis/ chart pattern setups in the currency pair.

Can you outline the components of an effective CHFJPY exchange strategy?

The components of an effective CHFJPY exchange strategy include:

  • The market condition to look for trade setups
  • The trading session to find trades
  • The entry criteria
  • The amount to risk and position size
  • Stop loss and profit target
  • The exit criteria

All these factors need to be quantified. The only other alternative is to have a trading record of live trading, but that requires time and by the time you have a decent number of trades you have most likely lost money.

We repeat again: you should backtest BEFORE you start trading.

What factors should be taken into account when devising a trading method for the CHFJPY pair?

The factors that should be taken into account when devising a trading method for the CHFJPY pair are many. Some of them include:

  • Your trading personality — do you like to enter fast and come out fast or like to hold your position for a long while?
  • The trading style that suits your personality — scalping, day trading, swing trading, or position trading
  • The strategy that suits the predominant market condition — trend following, mean reversion, momentum, etc.
  • When your trading setup occurs
  • How to identify your trading setup
  • How much to risk per trade
  • How to manage risks

The first point, your trading personality, is important, but most traders only discover this after a string of losses. Are you a risk seeker, or are you risk averse? What is the best personality trait for trading?

We believe a successful CHFJPY trading strategy is all about being systematic.

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