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Learn Forex: The Building Blocks of Scalping Forex

Learn Forex: The Building Blocks of Scalping Forex

2013-01-29 19:00:00
Walker England, Forex Trading Instructor
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Article Summary: The USDCHF has changed direction in the second half of January trading. Traders will look to incorporate momentum analysis to identify short term direction.

A day trader’s first job is to find market direction and short term momentum on their chart. Some times this can be a difficult proposition when trends change in the middle of the month. Below is a prime example on the USDCHF 4Hour chart. To begin the month, the currency pair advanced as much as 278 pips. Now price has retraced from its high at .9349 to decline as much as 196 pips through today’s price action.

Knowing this, it can be difficult for traders to decide how to trade the USDCHF. Should we be looking to buy or sell the market? To get a better idea of where the USDCHF is heading in the short term, let’s move in on price action and apply our block analysis to a 30minute chart.

Learn Forex – USDCHF 4Hour Trend

Learn_Forex_The_Building_Blocks_of_Scalping_Forex_body_Picture_2.png, Learn Forex: The Building Blocks of Scalping Forex

(Created using FXCM’s Marketscope 2.0 charts)

USDCHF Building Blocks

To better identify short term momentum, we have divided the previous week’s trading into two trading Blocks. This is a great technique to see if short term momentum is trading in the direction of the prevailing trend. Both Block 1 and Block 2 should be heading in the same direction to ensure that we are selecting a strong trend before finding scalping opportunities.

Below we can see Block 1 and 2 identified on a 30 minute graph. Block one begins on Sunday the 20th and runs through Wednesday the 23rd. Price in this block displayed strong downward momentum as price declined as much as 75 pips. Block 2 displayed the continuation of the downtrend as price again created. Both blocks have been painted red to indicate this continued downward momentum. Due to this analysis Forex day traders have been looking to sell the USDCHF.

Learn Forex – USDCHF Building Blocks

Learn_Forex_The_Building_Blocks_of_Scalping_Forex_body_Picture_1.png, Learn Forex: The Building Blocks of Scalping Forex

(Created using FXCM’s Marketscope 2.0 charts)

Tomorrow, our current price block will be closed and again our 30 minute chart will be updated. At present prices our current price block will also be painted red due to the lower low standing at .9192. Scalpers can take advantage of this as momentum has continued to the downside. Traders will watch the previous high at .9292. A break above this point would indicate a short term reversal in momentum on the USDCHF.

---Written by Walker England, Trading Instructor

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

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

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