The Building Blocks of Trend Development

Wednesday is the trading week’s half way point. It is important to reflect on the changes of price and see how our long standing trends are developing. Using our blocking method, mentioned in the May 4th edition of Chart Of The Day , we will attempt to find the strongest trends developing across currency pairs. This will allow us to pick which pairs to focus on and which to avoid for the remainder of the trading week. So let’s get started and take a walk down the charts to see which trends are developing.

GBP crosses have had excellent surge of weakness across the board and are excellent for trend trading. Most notably is the GBPJPY currency pair pictured below. Price has continued to make lower lows for both Block 1 and Block 2. The current low for Block 2 settled at 128.61 after a 219 pip decline. Trend traders are currently looking to use this weakness to sell in anticipation of new lows. If price fails to make a new low in our current price block, traders will use the chance to place fresh entries for a breakout scenerio.

This week, CAD crosses appear some of the most difficult for trend traders. Pictured below , we can see the AUDCAD trading higher in block one, reaching a top at 1.0300. For the remainder of the week, the AUDCAD proceeded to move lower. Block 2 created our first lower low and lower high, suggesting the beginnings of a fresh down movement on the pair. Current price labled in yellow, indicates the possibility of a lower high put in place at 1.05 95 on Tuesday. However, for a downtrend to be established a new low would need to be established before the close of our open block.

Using the analysis above, my preference is to continue to find opportunities to sell the GBP based pairs, including the GBPJPY and GBPUSD. CAD crosses have been pegged as some of the worst trends in the market. Pairs such as the AUDCAD and USDCAD will be avoided due to lack of momentum on the thirty minute chart.

---Written by Walker England, Trading Instructor

To contact Walker, email WEngland@FXCM.com . Follow me on Twitter at @WEnglandFX.

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