10/29 Analysis: How To Tell When Momentum Has Entered The Market
Today is a good example of how we analyze the market when there is 1 clearly strong or weak currency along with several currency choices to possibly pair it with on the other side.
First off, we don’t have much happening during the London session until over 20 minutes into it which is another lesson in having patience.
Finally, we have the AUD (orange line) which is clearly the weakest currency show some huge momentum with a steep line to the far right heading down.
But, there are 3 possible currency pairs on the strong side to potentially pair with the AUD. The GBP (red line), JPY (yellow line) and USD (blue line).
Which do you choose?
The best way is to look at the charts to see how much momentum is pushing prices.
Let’s compare the AUD/USD to the GBP/AUD:
At the time we see the momentum show up on our indicator, you can see that the move on the AUD/USD is only 10 pips while on the GBP/AUD it’s 25. The higher probability situation to grab a quick profit would be:
- GBP/AUD BUY
You can see that even if you entered at the close of that price bar, you would have got your 20 pip profit target within the next 15 minutes.
Being able to judge the current momentum in the market will give you a higher probability of a positive trade and better timing to grab those profits quickly.
You can watch the entire video analysis below:
[00:00 – 05:53]
[slide] [1st view indicator: red / blue / purple / yellow up, lilac down]
Hello, I’m James Edward from CompleteCurrencyTrader.com. Welcome to today’s Currency Strength Analysis training video. And, today, we’re looking at some things that you should consider to help you make a decision when you have multiple options and compare a strong currency against multiple weak currencies (or vice versa).
Now, the first thing to remember is that this indicator you are using is a simplified indicator, designed, specifically, to give you an introduction to trade in individual currencies and their various strengths and weaknesses. You have to remember that I trade with a much more advanced–
[slide] [2nd view: adv overview w/3 indicator views, pips, ticks & currencies]
(continues)… indicator that gives me an awful[ly] lot more information. You can see it on the screen here, that I’m looking at indicators in three different timeframes. I’m also looking at pip and tick volume and there’s a couple of other elements at the top of my indicator that gives me far more information than what you have available–
[slide] [1st view: indicator with orange diving, blue / pink / purple / yellow up]
(continues)… on this indicator. So, sometimes, you have to make considerations when you are deciding what to do with your trade entries. Please remember you are using an introductory strategy that I’ve designed to help you get used (on a very simple term) to trading individual strengths and weaknesses.
So, today, if you started the Market, this is the indicator at the London Open. There isn’t really anything that would get you into trading immediately.
You can see the NZD … even though the X has been predominantly strong. And we didn’t see any for the first 20 minutes. So this is 24 min after the Market opened. So the first 24 mnin have been poretty slow but, hopefully, you can see that the (lilac) New Zealand Dollar (NZD) has been predominantly weak over the last hour leading into the London Open. But, right now, it’s starting to turn back up and that’s the same with the strong currencies, even though something like the (red) British Pound (GBP) (up here) [points red] has been strong and is turning back down. So there is no trade immediately at the Open.
The Market actually got off to a pretty slow start today and we didn’t see any valid entries for the first 20 or so minutes. So, I’m going to fast forward through, very quickly–
[slide] [3rd view: orange drops, lilac climbs / drops, yellow / red / purple up]
(continues) … to this moment, here, which is the first opportunity that I would consider as a valid opportunity for you to enter trade. And this is 24 minutes after the Market has opened. So, the first 24 minutes of the Market have been pretty slow and this is your first opportunity, so hopefully, you can see that the (orange) Australian Dollar (AUD) is now moving very nicely down to weakness and, crucially, is moving very, very steeply (over here [points] on the right-hand side of the indicator) and that is really what we’re looking for because that is showing us that there is momentum on that currency.
And, with this introductory strategy of the break-out system, you are trying to take advantage of that burst of momentum to capture a very quick and simple 20-pip profit. Now, on the strong side, you have a number of currencies that are possible opportunities to pair against the (orange) Australian Dollar (AUD), but none of them are moving as steeply as the (orange) Australian Dollar (AUD). So, the (orange) Australian Dollar (AUD), by itself, that is (actually) the best currency in the Market. That is the one that you really want to be trading. So you want to sell the (orange) Australian Dollar (AUD).
But, to the strong side, you have to match it with something and, now, you have three options: The (red) British Pound (GBP), the (yellow) Japanese Yen (JPY) or the (purple) U. S. Dollar (USD). Which one do you go for? (Because none of those are actually moving as well as the (orange) Australian Dollar (AUD). They’re not a mirror image. They’re not moving as steeply. So, you have to make a decision as to which of those three currencies has the best probability of getting a quick 20-pip profit against the (orange) Australian Dollar (AUD).
So, let’s go over and look at them.
[slide] [B&W vertical line AUDUSD.MS]
(continues) … We’ll move over to those charts. This is the (orange) Australian Dollar (AUD) against the (purple) U. S. Dollar (USD), first of all. So, this is what you would’ve been seeing at this moment when this burst of momentum happened. [points 1st longest bar just right of ctr]
Now, that price bar–these are five-minute price bars–is just short of ten pips. So, there is a ten-pip move on the AUD:USD.
The other option–
[slide] [B&W vertical line AUDJPY.MS]
(continues) … was to pair the (orange) Australian Dollar (AUD) against the (yellow) Japanese Yen (JPY). And this price bar (here) [points 1st longest, just right of ctr] is the price bar that coincides with that burst of momentum. And you can see that both of these currencies that I’m showing you have got a bit of a trend happening and there is an increase of momentum.
So they are fairly valid. You could take those trades, but, let’s just remind ourselves of the size of that move–around about a 10-pip move on the AUD:Yen and around about a 10-pip move on the AUD:U.S. Dollar.
[slide] [B&W vertical line GBPAUD.MS]
Now, if I bring in the (red) British Pound (GBP) against the (orange) Australian Dollar (AUD), which was the other option, this [points 2nd longest bar left of center] is the price bar that coincides with that burst of momentum that we were seeing on the indicator. This price bar [runs cursor along bar] is over 25 pips. So, two-and-a-half times the size as what we were seeing on the (yellow) Japanese Yen (JPY) or on the (purple) U. S. Dollar (USD).
So, under those conditions, the consideration you need to make is which of those three options is going to get me the highest chance of getting a momentum burst that is going to push it, very quickly, into a 20-pip profit. And, on that occasion, looking at that size [points along same bar] of the move that you can see on the Pound:AUD, you’d have to say that, the Pound:AUD moving at 25 pips for that burst of momentum, as opposed to the (yellow) Japanese Yen (JPY) or the (purple) U. S. Dollar (USD), which are both moving only ten pips, this is the higher probability. And, you can see from the close of that price bar [creates cross bar 1 left of long bar, diag line to top 4 bars right] the price went up almost 30 pips in one direction. In fact, you’d have probably been closed out [points 1 bar rt of long bar] the very next five-minute price bar.
[slide] [previous 3rd view: orange drops, lilac climbs / drops, yellow / red / purple up]
(continues)… that is something for you to take into consideration the next time you’re presented with this kind of opportunity, where there is one currency moving significantly in the Market and you have multiple choices to pair it against.
It’s always worth going over to the chart and having a look at the charts to see which one is moving the furthest and the fastest and, therefore, most likely to have the momentum behind it that is going to carry your trade very quickly into profit and give you that winning trade when you need it.
You can see that our Currency Strength Indicator is an effective tool for picking out the highest probability, lowest risk trade set ups while avoiding market conditions that aren’t favorable. If you keep using this tool every day along with our daily Forex analysis, you will increase your win rate and be on your way to becoming a profitable trader long term.
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