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Identifying a Currency for Forex Scalping

Identifying a Currency for Forex Scalping

Walker England, Forex Trading Instructor

Article Summary:Picking the right pair for scalping can be a difficult decision. Today we will review picking a currency for trading using trend and momentum analysis.

Every day scalpers are faced with a variety of choices prior to starting their trading day. One of the most difficult always falls on which currency pair to trade. Today we will examine how to make this decision easier by identifying strong trending pairs with directional short term momentum.

First, pairs should be assessed for their trend. Traders look for trends in an effort to buy in an uptrend and sell in a downtrend. A good candidate for scalping this week is the USDCHF. Prices can be seen in the chart below steadily moving up the chart making a series of higher highs. Currently the pair has moved as much as 500 pips higher for the month of May, making it a great candidate for future buying opportunities.

Learn Forex: USDCHF 4Hour Trend

Identifying_a_Currency_For_Forex_Scalping_body_Picture_2.png, Identifying a Currency for Forex Scalping

(Created using FXCM’s Marketscope 2.0 charts)

It is important to also understand, even if the trend is up there can be pullbacks against prices in the short term. This is why it is important for scalpers to also ensure that momentum is heading in the direction of the primary trend. To find price momentum, I like to use a method of price blocking to see if momentum is rising and falling for a preceding trading week.

Below we can see the USDCHF blocked off by separating price on Sundays & Wednesdays. The key to this analysis is to ensure that price continues heading in a singular direction during both periods. For Block 1 the USDCHF advanced as much as 296 pips. The trend was again solidified with prices making higher highs. With both price blocks headed in the direction of the primary trend, we can then look to employ the scalping strategy of our choice.

Learn Forex: USDCHF Trend Blocks

Identifying_a_Currency_For_Forex_Scalping_body_Picture_1.png, Identifying a Currency for Forex Scalping

(Created using FXCM’s Marketscope 2.0 charts)

Remember that it is always important to match a strong pricing trend with strong market momentum, to identify the best currency pairs for scalping. Once this process has been mastered, it can be applied to virtually any currency pair. If one of these components is lacking, it may be best to continue looking for another currency pair that meets your requirements for trading.

---Written by Walker England, Trading Instructor

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

To be added to Walker’s e-mail distribution list, CLICK HERE and enter in your email information.

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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