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Short Term Momentum for Forex Scalping

Short Term Momentum for Forex Scalping

2013-03-20 19:00:00
Walker England, Forex Trading Instructor
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Article Summary: The Euro continues to be one of the markets weakest currencies. As the trend develops, traders will use momentum analysis to time future scalping opportunities.

The outlook of the Euro (EUR) has been in a fundamental flux this week causing many traders to turn to technical strategies to find potential selling opportunities. As strong as some trends may be, it is always important for scalpers strategy to also find market momentum before placing trades.. So how do we conclude which pair is suitable for scalping? To find out, today we will be looking at an example using the EURAUD currency pair.

To maximize the decline of the Euro, today we will be pairing the currency against the Aussie Dollar. Many traders choose to trade the EURAUD due to the interest they receive from selling the pair along with the capital appreciation that can be gained from following the trend. Viewing the 4Hour trend below, can see the EURAUD declining as much as 794 from its high in February. Knowing this, traders may move in to smaller time frame charts to help determine short term market direction.

Learn Forex – EURAUD Daily Trend

Short_Term_Momentum_for_Forex_Scalping_body_Picture_2.png, Short Term Momentum for Forex Scalping

(Created using FXCM’s Marketscope 2.0 charts)

EURAUD Building Blocks

Due to counter trend swings that can occur when trading longer term graphs, it is also important to determine the direction of short term market momentum. One technique that can be useful to scalpers is to divide the previous trading week into halves. This will create two congruent trading blocks to help determine if momentum is indeed point in the direction of the trend. If both points of analysis line up, traders may then begin to look for future scalping opportunities.

Below we have divided our previous trading week price action on the EURAUD into segments labeled Block 1 and 2. Block 1 begins on Wednesday the 13th and runs through Sunday the 17th. Block 1 shows the EURAUD moving to a new low at 1.2468. Block 2 shows a continuation of downward momentum as price can be visually seen gapping to lower lows. To symbolize the weakness of both blocks they have been labeled in red. Knowing that short term momentum is continuing in the direction of the primary trend, short term traders will continue to look for opportunities to sell the EURAUD.

Learn Forex – EURAUD Building Blocks

Short_Term_Momentum_for_Forex_Scalping_body_Picture_1.png, Short Term Momentum for Forex Scalping

(Created using FXCM’s Marketscope 2.0 charts)

Even though both blocks in our momentum analysis are pointing towards lower lows, current price can be seen advancing and attempting to move against our primary trend. Scalpers may look to trade these swings as long as no new higher highs are created. If the price of the EURAUD does break to new highs, traders should potentially look for a new pair to trade or wait for a new breakout towards lower lows.

---Written by Walker England, Trading Instructor

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

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