Pinpointing the Turn in the EURUSD

Article Summary: Momentum is turning on the EURUSD. Today we will review identifying a change in short term trends for scalping Forex.

Navigating short term trends can be a difficult task for scalpers. When market momentum shifts from an uptrend to a downtrend, day traders should have a plan of action to switch gears and change market direction. Today we will review pinpointing a turn using market momentum on the EURUSD.

Below we can see a change in direction on the EURUSD using the 4Hour chart. From the beginning of the month the EURUSD has advanced as much as 457 pips to the standing high at 1.3202. Since that time the trend can now be seen moving to the downside. However, before any new orders are put into play, traders will question if short term pricing is moving in the direction of the trend.

Learn Forex – EURUSD 4HR Trend

(Created using FXCM’s Marketscope 2.0 charts)

EURUSD Building Blocks

Our building block methodology which is normally reserved to finding market momentum can also be used to find changes in the short term trend. Our analysis begins by segmenting our charts by blocking off Wednesdays and Sundays on the graph. The key is to identify changes in market direction by examining the swing highs and lows for these divisions.

Below we can see an example using our building blocks for the EURUSD. Block one below begins on Wednessday the 17th and it should be noted that the pair made a series of lower lows and lower highs through Sunday the 21st. Recognizing that price is down, it should be compared with our previous pricing block that formed a series of high highs through the 16th. By reviewing these blocks traders will have their first signal that the short term momentum for a currency pair is turning.

Learn Forex – EURUSD Building Blocks

(Created using FXCM’s Marketscope 2.0 charts)

Above we can see continued downward momentum for the EURUSD. Pricing Block 2 has also indicated a series of lower lows. Now that the trend has been moving in the same direction for two pricing blocks we can now begin to look for new opportunities to sell the EURUSD.

---Written by Walker England, Trading Instructor

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

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