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Just yesterday, the Swiss National Bank (SMB) unexpectedly announced that it was ending its minimum exchange rate of 1.20 swiss franc per euro, dropping this bombshell just a week before the ECB’s expected announcement of quantitative easing.

In addition, they also announced the lowering of the interest rate on deposit account balances that exceeded a given exemption threshold, from -0.25% to -0.75%.

The SNB noted the end of solidarity was one reason to discontinue the cap, saying division is “a trend that is likely to become even more pronounced.” As the Fed readies to tighten monetary policy, deflationary forces mean the ECB is looking to ease anew. The Bank of Japan has already done so.

The SNB had imposed the floor limit in 2011 during the height of the Eurozone debt crisis as the franc strengthened considerably in that period, raising the risk of deflation in the country. Following that, EUR/CHF has hovered around 1.20 for more than three years, never having risen above 1.25 in that period.


Euro dollar vs. Swiss France

Euro dollar vs. Swiss France


However, a weak Eurozone economy, plus the ECB’s constant stimulus measures, caused the euro to weaken significantly in the past year, which has forced the SNB had to continuously depreciate their Swiss franc to maintain the floor limit. But Switzerland has no need for monetary stimulus. While it has been hit by the dire straits of the Euro-area, its economy is not in too bad a state and does not require any boost from the central bank.

To have conducted stimulus when there is no need to, the SNB risks the huge possibilities of high inflation and major price distortion. This has been made worse by Russia’s recent troubles, which saw a huge demand for Swiss francs by Russian billionaires.

The removal of the 1.20 floor is probably a strong signal that the ECB will announce some form of QE in next week’s monetary statement. The SNB has probably judged that Switzerland’s economy cannot afford to run the risks of price distortions brought about by the ECB’s QE and has chosen to abolish the floor limit to negate this risk.


EUR/CHF - Crazy plunge of 2315 pips!

EUR/CHF – Crazy plunge of 2315 pips!


Some food for thought after the 1.20 EUR/CHF floor removal

  • After much sharp movements (see chart above) which included a spike down followed by a bounce, the market appears to think that the fair value for EUR/CHF is around 1.00.
  • Virtually every position which was long USD/CHF was margin-called.
  • Most macro hedge funds, which were long EUR/CHF, were crushed.
  • How much of the SNB’s credibility has been hit? Switzerland has long had a reputation of financial stability; in fact two days ago it just reaffirmed its commitment to keep the floor limit. The shocker yesterday may test the trustworthiness of the Swiss banking system.
  • Currency supremacy war? The US dollar had no competition at the start of the year for the running of best-performing currency in 2015. With a freely-traded franc, that conclusion suddenly doesn’t look so assured.
  • Will Hong Kong be next in breaking its peg with the USD? A rising USD has caused the value of the HKD to climb unnecessarily; previously a weak USD (and hence HKD) plus fund flows from China drove property prices in HK to extremely high levels.
  • How badly will Switzerland’s export-oriented economy be hit?

After getting out of this trade last together with the Synapse Network, I checked my trade records and realised what an awesome homerun it was with a whooping 711 pips profit!

The more uncanny thing was that when I look back this week, I realised that we got out near the exact high, because the USD/JPY has now corrected about 400 pips since we took profit!

Such precision timing with behavioral analysis. Next, we will be looking to long again once the pullback has ended. Stay tuned! 😀

On the downside, we got stopped out of our NZD/USD short trade with a 50 pip loss.

usdjpy 111214 1

2014-12-05 17.33.47

usdjpy 111214 2

usdjpy 111214 3

Tried out trading this new forex pair when I glimpsed a good HFT setup on it, and turns out it was a good choice!

Congrats to those in the Synapse Network who took this trade with me for a quick 196 pips profit! 😀

audcad 111214

audcad 081215

audcad 111214 2

This is no doubt our best HFT (hands-free trading) trade for the month, with over 400+ pips and $5,096 in profits!

We have always taken half the position off at TP1, and I will be gunning for even more profits with my next TP2 at around the 120 zone.

This is gearing up to be one of the best months, and there is probably still time for another monster trade before closing the books.

Stay tuned! 😀

Hint: GBP/USD looks like it might be due for a bullish rebound soon.

2014-11-20 03.12.27