TECHNICAL ANALYSIS
FX
which is, I want to see the weekly and the daily moving, or more precisely, “trending” in the same direction.
Note: A mechanical approach will Chart 1. Monthly chart
serve you best over the long term but to reiterate the point that trading is an art and not a science, discretion can be and must be applied when called upon. Te daily 200sma is the initial driver of the bias so a break above the daily 200sma will give price the initial bullish bias and a break below will give price the initial bearish bias. In the most ideal of scenarios, and to really confirm the edge that we desire, breaking above
(bull market) or below (bear market) the weekly 200sma would also be required.
However, there are on occasions where the weekly 200sma may be a distance away from the daily 200sma. If an entry point presents itself based on the rest of my criteria being met, then I would test the waters with a trade but just as previously mentioned, at reduced risk.
Chart 2. Weely chart
to draw charts by hand. This was clearly a time consuming process and so were very selective of the information they put on their charts. The 200sma was proven to be a good indicator of the long term trend.
TTo look for the all-important edge on the weekly time frame, I want to see:
In a bull market • Price trading above the 200sma giving price a bullish bias. • Te 50sma acting as support. • Te moving averages heading up and not flat.
In a bear market • Price trading below the 200sma giving price a bearish bias. • Te 50sma acting as resistance. • Te moving averages heading down and not flat.
The daily time frame
Te setup on the daily time frame is no different to the weekly timeframe. I use the 200sma and the 50sma in exactly the same way to look for trend direction. Ultimately, what I am looking for is alignment between the two time frames
The edge
If we put all three time frames together, the edge, for me, as a trend trader is defined as:
In a bull market • Above the high of the previous calendar year (displayed on monthly) • Above the 200sma (displayed on the weekly and daily) • Above the 50sma (displayed on the weekly and daily)
In a bear market • Below the low of
the previous FX TRADER MAGAZINE April - June 2016 69
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