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Picking Currency Pairs for Forex Scalping

Picking Currency Pairs for Forex Scalping

2013-06-05 19:00:00
Research, Research Team
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Article Summary: Identifying a currency pair for trading is an important task for Forex scalpers. Today we will identify one of this week’s opportunities in the Forex market.

Each week Forex scalpers are tasked with a variety of important decisions. Probobly one of the most difficult is finding which currency pairs are best suited for trading. Today we will review how to simplify this determination by using a series of trend and momentum analysis techniques.

When deciding on a pair for trading, first scalpers are tasked with finding a strong market trend. A strong trend is imparitive for scalping and will be used to determine wether traders should place buy or sell orders. Below you can see the EURCAD trend in focus as it has increased in value over the past two weeks. Currently the pair is making a fresh montly highs after advancing as much as 423 pips from the May 15th low. As the market continues to make higher highs, traders should then begin to look for fresh opportunites to buy the EURCAD.

Learn Forex –EURCAD 4Hour Trend

Picking_Currency_Pairs_for_Forex_Scalping_body_Picture_4.png, Picking Currency Pairs for Forex Scalping

(Created using FXCM’s Marketscope 2.0 charts)

The next step that should be taken to identify a pair for scalping is to identify short term market momentum. While trends are longer term directional moves, identifying short term momentum is designed to find times when those trends are the strongest. To identify the optimal trading scenario for uptrends like the EURCAD, traders should look for a series of higher lows and higher highs for a minimum of one full trading week. This can be found as shown using the method below.

The blocking method for identifying short term momentum is intended to divide a trading week in half to ensure short term momentum is in line with a longer trend. We can see the previous EURCHF trading week, blocked off below by identifying the previous Wednesdays and Sundays on our chart. In an uptrend, traders should seek currency pairs that make higher highs for both periods ensuring momentum is currently headed in the direction of the trend. In the event that price breaks the previous low, which currently stands at 1.3424, traders would contend that short term momentum is ending and should seek other trading opportunities.

Learn Forex –EURCAD Building Blocks

Picking_Currency_Pairs_for_Forex_Scalping_body_Picture_2.png, Picking Currency Pairs for Forex Scalping

(Created using FXCM’s Marketscope 2.0 charts)

Now that both trend and momentum have been identified, traders can then look to implement a variety of scalping techniques to enter into the market. It is important to remember that even though this analysis has vetted the EURCAD to consider for trading, the trend may turn at any given point in time. In the event that price begins to make higher highs, scalpers should always utilize a stop and look to exit losing positions as quickly as possible.

---Written by Walker England, Trading Instructor

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

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Looking for more information on risk management? Take our free risk management course and learn more about adding Risk/Reward levels to an existing strategy.Register HEREto start learning!

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

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