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Know Which Trends to Trade

By , Forex Trading Instructor
28 August 2013 19:00 GMT

Article Summary: Identifying a currency pair for trading is an important task for Forex scalpers. Today we will examine the EURNZD to determine if its 949 pip trend is viable for trading.

Each week Forex scalpers are charged with a variety of important decisions to make. Probably one of the most difficult is finding which currency pairs are best suited for trading. Strong trends are preferable for scalping because one a trend is found, traders can decide their preference to buy or sell a specific currency pair. Today we will review how to simplify this determination by using a series of trend and momentum analysis techniques.

Learn Forex –EURNZD 4Hour Trend

Know_Which_Trends_to_Trade_body_Picture_1.png, Know Which Trends to Trade

(Created using FXCM’s Marketscope 2.0 charts)

Above we can see the strong uptrend being played out on the EURNZD. Over the past 10 days the pair has been easily cruising to higher highs, advancing over 949 pips from its monthly low at 1.6325. To identify the optimal trading scenario for uptrends like the EURNZD , traders can also look for a series of higher lows and higher highs on shorter term charts.

Below we can see the EURNZD divided into a series of trading blocks. These pricing blocks have been created using a 30min graph, using the techniques discussed in a previous Trend of the Day Article, The Midweek Trend Review. With both blocks heading higher this is normally a signal of a strong Forex trend. However, many traders may find themselves indecisive on the EURNZD with current price action declining during today’s trading. Which begs the question if scalpers should still be looking to buy the EURNZD.

Learn Forex –EURNZD Building Blocks

Know_Which_Trends_to_Trade_body_Picture_3.png, Know Which Trends to Trade

(Created using FXCM’s Marketscope 2.0 charts)

One advantage of using the blocking method is that the previous highs and lows will have already been marked on your graph. Above we can see that price has yet to descend below the previous low at 1.6989. In the absence of new lows, traders can reasonably assume that a new downtrend is not developing.

With this in mind, traders can proceed to patiently look for momentum to return to the EURNZD before perusing fresh scalping opportunities. In the event price does decline under the previous low, this would be a strong signal that our trend has at least temporarily ended allowing traders to pursue other opportunities and currency pairs.

---Written by Walker England, Trading Instructor

To contact Walker, emailwengland@fxcm.com. Follow me on Twitter at @WEnglandFX.

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28 August 2013 19:00 GMT