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Scalping Forex Market Momentum

Scalping Forex Market Momentum

2013-07-10 19:00:00
Walker England, Forex Trading Instructor
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Article Summary: The USDCHF continues to trend into today’s FOMC Meeting Minutes release. Learn if the trend is poised to continue using short term momentum analysis.

Many traders have been eyeing the USDCHF trend over the past trading month. This is for good reason as the pair has moved over 621 pips in its current uptrend identified below. While many traders are eyeing todays FOMC Minutes to provide clearer direction before trading, scalpers can use a series of technical techniques to identify market momentum. Not only will this help identify a potential trade bias, but also give us an idea if our trend is set to continue.

With this in mind, today we will focus on how to identify short term momentum during extended Forex trends using the USDCHF as an example.

Learn Forex –USDCHF 4Hour Trend

Scalping_Forex_Market_Momentum_body_Picture_2.png, Scalping Forex Market Momentum

(Created using FXCM’s Marketscope 2.0 charts)

As trends continue, there will be natural pullbacks in price action along the way. In order to avoid trading into a retracement, Forex scalpers should always first identify a currency pair’s momentum. One way to identify new short term momentum is to divide the previous week’s trading into two distinct pricing blocks. The key to this analysis is to ensure that short term prices are moving in line with our broader trend, prior to entering new positions. Now let’s zoom in and take a closer look at the USDCHF.

Below we can see the current USDCHF 30min chart divided into two pricing blocks. Block One is formed from Wednesday the 3rd through Sunday the 7th. During this period we can see the USDCHF create a higher low, while advancing to a peak at .9659. This advance was followed up by Block 2 which was also seen making new highs, moving up to .9750. In a strong uptrend, both blocks should be heading higher with the primary trend. In the case of the USDCHF this is true, indicating that Forex scalpers will continue looking for opportunities to BUY the USDCHF.

Learn Forex –USDCHF Trading Blocks

Scalping_Forex_Market_Momentum_body_Picture_1.png, Scalping Forex Market Momentum

(Created using FXCM’s Marketscope 2.0 charts)

It should be noted that price is currently trading inside of the price range established byBlock 2. If price breaks above the Block 2 high, this would be an extremely bullish signal to the market. However in the event that price changes direction and breaks to a new low, this would begin a potential trend shift for the USDCHF. In the event of this scenario, short term traders should exit any existing long trades while seeking a better trading opportunity.

---Written by Walker England, Trading Instructor

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

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