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USD/HUF a 6995 Pip Trend Offers a Lesson In Strength Analysis

USD/HUF a 6995 Pip Trend Offers a Lesson In Strength Analysis

2012-01-11 17:52:00
Walker England, Trading Instructor,
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The Hungarian Florint (HUF) continues to dominate the market as one of the worlds declining currencies. Below is a graph comparing the EUR/HUF to the USD/HUF currency pair. Both pairs are in extraordinary uptrend. From the May 2011 low at 263.23, to the current 2012 high at 324.24, the EUR/HUF has trended upwards of 6100 pips. Conversely during the same period the USD/HUF moved from its May 2011 lows of 176.63 to the current 2012 high at 246.58 for a trend of 6995 pips.

USDHUF_a_6995_Pip_Trend_Offers_a_Lesson_In_Strength_Analysis_body_Picture_1.png, USD/HUF a 6995 Pip Trend Offers a Lesson In Strength Analysis

So we have two strong trends, which currency pair should we trade? Both pairs are looking at further weakening of the counter currency, the HUF. With that in mind, we should base our analysis on our primary variable for trading, the strength of the base currency. This is imperative because when trend trading we want to optimize our trade by buying the strongest currency relative to the weakest. The easiest way is to simply pull up a chart comparing the two currencies.

Below is a daily chart of the EUR/USD. From the graph we can visualize the EUR/USD decline from its May 2011 high at 1.4939 to its current 2012 low at 1.2661. One fact should become apparent when viewing this 2278 pip decline. The USD is significantly stronger than the EUR! We now know which currency to trade against the HUF. With our attention drawn specifically to the USD/HUF we can no look to smaller term charts to find entrys to join the trend.

USDHUF_a_6995_Pip_Trend_Offers_a_Lesson_In_Strength_Analysis_body_Picture_2.png, USD/HUF a 6995 Pip Trend Offers a Lesson In Strength Analysis

Moving in to the USD/HUF 4Hour chart, we can begin to see a clean trend line emerging. This line can be used as a point of entry for buying orders. Oscillator traders may also choose to use their indicator of choice, such as MACD, for spotting entry opportunities. Regardless of the method chosen for entry, finding a level for your stop is a straight forward process. Stops should be kept outside of the trend line, so positions will be abandoned in a breakout scenario.

USDHUF_a_6995_Pip_Trend_Offers_a_Lesson_In_Strength_Analysis_body_Picture_3.png, USD/HUF a 6995 Pip Trend Offers a Lesson In Strength Analysis

My preference is to buy the USD/HUF using an entry order near 243.00. Stops will be set outside the trend line at 241.50. Primary profit targets may be set at 246.00 for a clear 1-2 risk/reward ratio. Secondary targets should look for new highs over 252.09 .

Alternative scenarios include price breaking under out trend line and moving lower.

---Written by Walker England, Trading Instructor

To contact Walker, email instructor@dailyfx.com. Follow me on Twitter at @WEnglandFX.

To be added to Walker’s e-mail distribution list, send an email with the subject line “Distribution List” to instructor@dailyfx.com

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