October 7, 2015Daily Analysis

10/7 Analysis: How to Read Momentum in the Market

How to Read Momentum in the Market

A few minutes into the London session, the weakest currency is the EUR (pink line) which also has spiked down with a steep line to the far right which indicates major momentum is happening now in the market.

On the upside, the AUD (orange line) has been the strongest currency by far for quite some time but it doesn’t have a lot of momentum. Instead, I like the GBP (red line) because even though it just popped through to the strong side, the steep line to the far right tells us major momentum is going on now to the upside.

  • EUR/GBP SELL

100715 LondonTrade

You can see how important timing is along with matching a strong currency (with current momentum) against a weak currency (with current momentum).

Price goes straight down 37 pips for an easy profit.

Watch the entire video analysis below to see another trade example where timing was critical to the outcome:

[00:00 – 06:16]

[slide]              [all 8 currencies center with lilac dipping early & orange skyrocketing, rt]

                        Hello, I’m James Edward from CompleteCurrencyTrader.com. Welcome to today’s Currency Strength Analysis training video. Today, I have two examples to show you, both in the London session. One of the examples follows on from the theme from yesterday with regards to the timing of your entries and the other example is showing you a currency pair which, perhaps, doesn’t get traded all that often, but does, under the right circumstances offer potential.

So to start with, doing our initial analysis, looking for strong currencies which are strengthening and matching them against weak currencies which are weakening, there isn’t really anything obvious that would be jumping off the indicator right now at the start. The (orange) Australian Dollar (AUD) probably is the strongest and that, generally, is going on up, so that would be a currency to keep an eye on. But, to the weak side there isn’t anything immediately outstanding. But you can see that the pink line points far rt below zero] here, which is the Euro (EUR) is moving down quite steeply, so you could (potentially) be looking at something there.

My advice in this situation, looking at exactly how the indicator is right now, would be to wait, actually, just to see if the Market picks up a little bit better and you get a stronger entry signal.

So, if I fast forward–

[slide]              [2nd view: 4 min to right, orange high, pink dives]

(continues) … just four minutes into the Market, you will see there is a stronger signal. So the (orange) Australian Dollar (AUD) is (actually) continuing to move up to strength and, now, where we saw the (pink) Euro (EUR) moving down at this point [indicates] it’s pulled back a little bit and is now spiking down even more steeply. So, the more obvious trade, there, could potentially be the Euro against the Australian Dollar. That might be the one that catches your eye the most.

But, I would also ask you to take a look at the (red) British Pound (GBP) here, [points far rt] the red line, that is the currency to the strong side that is (actually) moving the most steeply. So, although it isn’t up here [points orange AUD] as the overall strongest currency, yet, it is moving steeply. And, remember, one of the most critical factors whenever you are considering a break-out trade is momentum. You want to trade the currencies with the most momentum moving the fastest (and that is always indicated by the steepness of the lines), but for now we’ll look at the (pink) Euro (EUR) against the (orange) Australian Dollar (AUD).

[slide]              [B&W vertical line EURAUD.MS]

(continues) … So, if I go over to that chart, [two horiz red lines just below ctr at top of longest bar at ctr] this is the Open of the London Market [points ctr bar just left] and I’ve drawn two red lines on here [indicated] because, if I go back over here–

[slide]              [2nd view: 4 min to right, orange high, pink dives]

(continues) … to the indicator, this is the four-minute point and–

[slide]              [3rd view: 5 min rt, orange tops, pink beyond bttm with blue on its heels]

(continues) …  this is the five-minute point. So, at the five-minute point you can see that the signal is even more strong. So you have a minute period here to watch it develop from the first signal up to the actual confirmation.

[slide]              [previous B&W vertical line EURAUD.MS]

(continues) … These two red lines show that one minute. This is the Open of the four-minute price bar [points top line] and this is the close of that four-minute price bar. [points lower red line] Between these two red lines would be that one minute that you have to identify that trade and make a decision.

The reason I’m showing you that, as I showed you in the video yesterday, is that timing can be critical because, if you entered at the first red line the price actually gone down 25 pips so you could’ve got[ten] your 25-pip profit target there.

If you’d been a little bit slower and you’d entered a little bit later, [creates cross bar2 bars left of ctr longest on bttm red line] at the bottom red line (which is the close-out, four-minute price bar), then the price has, in fact, gone down just over 18 pips. So this would be a situation where the price does go all the way down, almost gets to your profit target, but doesn’t quite hit it and then reverses.

And, remember, because you’re using a trailing stop, pip-by-pip behind the price, when the prices move down 18 pips into profit, your stop-loss is closed up 18 pips and is now only two pips behind your entry. Therefore, you could be closed out at this point for a very, very small loss, in spite of the fact that the rest of the morning that trade did carry and the trend carried on. [points to lowest bar]

So that’s showing you, similar to the example I showed you yesterday, of where  showing you that timing can be critical. But–

[slide]              [3rd view: 5 min rt, orange tops, pink beyond bttm with blue on its heels]

(continues) … if I go back over to the dashboard, where I showed you the (red) British Pound (GBP), if I go back–

[slide]              [2nd view: 4 min to right, orange high, pink dives]

(continues) … to that four-minute point, so, at this stage when you see the Euro is starting to move very steeply, you should also notice that the (red) British Pound (GBP) is moving steeply [points far rt] here and is moving steepest of the strong currencies. So that may be a much more attractive situation for the purpose of a break-out trade because, remember, with the break-out trades, you are trying to take advantage of the momentum which is what you’re looking at here with those steep moves. And that’s the start of the four minutes.

And this–

[slide]              [3rd view: 5 min rt, orange tops, pink beyond bttm with blue on its heels]

(continues) … is one minute later. This is five minutes later. You can see the (pink) Euro’s (EUR) continued down and the (red) British Pound (GBP) is actually getting better and better.

So, again, let me go over t’ that chart now and you’ll see that this–

[slide]              [B&W vertical line EURGBP.MS]

(continues) … trade is actually more attractive. [creates cross pt 2nd long bar, draws down to lowest long bar] This is the Open of the London Market. And, from the Open, the price has gone down, total before any pull backs, a total of 37 pips. So you could’ve easily (or more easily) in this situation taken your profit without any fear of that reversal that we saw on the Euro:AUD and stopped out for a small loss if you weren’t quite quick enough.

So, on this trade, you could’ve entered at anywhere on this price bar [back to 2nd longest bar] which is anywhere within that four-to-five minute window here [points bttm same bar] You probably entered somewhere near the bottom, here, or even at the start of this price bar [1 bar rt of 2nd longest, creates cross pt] but, even so, [diag line to bttm lowest bar] the price has still gone down way more. I mean, there’s 30 pips there. So you could’ve easily gotten your 20-pip trade.

So, that’s showing you–

[slide]              [3rd view: 5 min rt, orange tops, pink beyond bttm with blue on its heels]

(continues) … two different examples there of the difference between looking for either the absolute strongest against the absolute weakest or looking for the currencies which are moving most steeply. And, if I go–

[slide]              [initial 1st view: lilac dipping early & orange skyrocketing, rt]

(continues) … back to the initial signal that we saw, you can see how the (red) British Pound (GBP) is moving more steeply than the (orange) Australian Dollar (AUD), so that may be the currency that you actually pay more attention to and make your final decision on entering for your break-out trade.

[end]

(6:16)

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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James Edward
James Edward has been a successful Forex hedge fund manager & educator for over a decade. He founded Complete Currency Trader, a London based firm that has consistently trained individuals to become professional and profitable traders long term using the individual currency strength analysis methodology. CCT is an elite Forex educational firm and has a reputation second to none with over 90 positive reviews and an overall 4.538 out of 5 rating on the third party verification site Forex Peace Army. James’s affable personality, expert knowledge, notoriety for getting results, and steadfast dedication to his clients, has secured his position as one of the most trustworthy, liked, and in demand authorities in the industry.