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Using a Strong Trend on the Daily Chart to Dertermine the Pair We Will Trade.

Using a Strong Trend on the Daily Chart to Dertermine the Pair We Will Trade.

Richard Krivo, Trading Instructor

Student's Question:

Would you post a good example of chart that has the strong, tradable trend that you so often mention?

Thanks.Instructor's Response:Sure…

Here are two example charts to which you can refer…A trader would consult the Daily chart to determine the overall direction that the pair is moving. Then,choosing from all the available currency pairs, the trader would select the one with the strongest trend as that would provide the greatest potential for a successful trade.Note the difference on the Daily chart A and the Daily chart B shown below…

A trader can readily see which one presents the more viable trading opportunity...Chart A.

Looking at the Daily chart A, we can see this pair is in a solid and unquestionable downtrend since mid-March of 2009. With this information, we know that we only want to look for selling opportunities on this pair. This does not mean that any short positions taken will be winners. Iit does mean, however, that we are placing our trade to take advantage of the bearish market momentum that is in place on this pair.

Contrast this chart with the pair represented by Chart B which has been moving in a relatively flat and random manner by comparison.After using the Daily chart to decide the direction we want to trade the pair, we then would consult a 4 hour and a 1 hour chart to "fine tune" our entry in that direction.Here is a link that explains this concept, Multiple Time Frame Analysis, in a bit more detail...

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