FX TECHNICAL ANALYSIS
I define the trend comparing the position of the price to a given moving average and then I define the market strength comparing the price to another moving average.
First, we need to define the most important moving average based on the time frame that we trade. Depending to the time frame that you trade and the market that you trade you may find that the most i mp o r ta n t moving average is different for you. But I have found that for me the 100-period moving average works best. Tat means that if I trade on an hourly chart (with a time horizon of several hours to a few days), I will look at the 100-hour moving average, if I trade on a daily chart (with a time horizon of several weeks to a few months), I will look at the 100-day moving average and so on. Again, this may be different if you have a different time horizon and holding period.
Te key is to see where the price is compared to this 100-period moving average and most importantly, what’s
the direction of this moving average. If the moving average is trending up, basically that defines the current trend as up and the trend is stronger if the prices are above this 100-period moving average. If the moving average is trending down, the price trend is also down and of course, if the moving
to use the 21-period moving average. And if we have an uptrend (with the price above the rising 100-period moving average) and the price is also above a rising 21-period moving average, you have a strong uptrend. Te opposite goes for a strong downtrend.
Te trend is
weak when the 21-period moving average trades sideways or in the opposite direction of the 100-period moving average. For example, if the prices are above the rising 100-day moving average but
the
21-day moving average is trading either sideways or down, then the
uptrend
average is trending sideways, that makes the price trend also sideways. Now, that seems quite simple, but the point is that the simple things usually work best.
DEFINING THE MARKET’S STRENGTH
Once you define the market trend, it is important to define its strength. To do that I use another moving average which is much faster than the 100-period moving average. I prefer
20 FX TRADER MAGAZINE October - December 2013 With all this categories of market trend:
• Strong Uptrend • Weak Uptrend • Sideways Market • Weak Downtrend • Strong Downtrend
EXAMPLES
Now, let’s look at some examples to further clarify this methodology:
is considered weak. in mind, we have 5
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