Article Summary: The GBPCAD continues to trend into today’s heavy economic calendar. Learn if the trend on this Forex currency pair is poised to continue by using short term momentum analysis.
Canadian currencies have been popular this week with Forex scalpers. This is for good reason as most CAD cross pairs continue to trend against exceptionally well against other major currencies. Despite its strength it is always prudent to investigate if short term momentum is moving in tandem with a primary trend before placing any new positions. Through this analysis scalpers will develop a trading bias, as well as identify the strongest currency pairs for trading.
Today we will focus on the GBPCAD currency pair. As it continues on its multi month downtrend, we will look to identify short term momentum to validate any new scalping opportunities.
Learn Forex –GBPCAD 8Hour Trend
(Created using FXCM’s Marketscope 2.0 charts)
Even though a trend is strong, normally along the way price can almost inevitably be seen retracing at some point against its primary trend. Scalpers can look to avoid these periods by using a series of price action techniques. One way to avoid counter trend scenarios is to identify short term market momentum by locating a series of lows and highs on the chart. In a downtrend like the GBPCAD, scalpers can use a blocking technique to divide their charts into segments or pricing blocks. If price is in a downtrend price should be making lower highs and lower lows for each segment of the graph. Let’s take a close look at the price action of the GBPCAD
Below we can see the current GBPCAD 30min chart divided into two pricing blocks. Block One is formed from Wednesday the 24th through Sunday the 21st. During this period the GBPCAD did create a series of lower lows, while declining as much as pips. Next we will look at Block 2 which again continued moving towards lower lows. It should be noted that if a strong trend is continuing, both blocks should be heading in the same direction. Our analysis confirms that is exactly the case with the GBPCAD. Now knowing that current momentum is headed lower in the direction of the primary trend, Forex scalpers may continue looking for new opportunities to SELL the pair.
Learn Forex –GBPCAD Trading Blocks
(Created using FXCM’s Marketscope 2.0 charts)
At present current price can be seen already trading beneath the Block 2 low. This move falls in line with a continuation of the GBPCAD downtrend. However in the event that price changes directions and the pair moves toward higher highs, this could the beginning of a short term reversal. In the event of price breaking above the Block 2 high at 152.32, short term traders should consider exiting any existing trades while searching for new trading opportunities.
---Written by Walker England, Trading Instructor
To contact Walker, email instructor@dailyfx.com. Follow me on Twitter @WEnglandFX.
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