9/14 Analysis: How To Identify Current Momentum
Today I want to show you some advanced analysis to determine which currency pair to trade when you have multiple opportunities.
The first step is to identify strong and weak currencies using our Individual Currency Strength Indicator. The strongest currency is the NZD (purple line up top) and it does have some current momentum. However, the AUD (orange line) really has that steep line to the far right that we look for indicating a lot of current momentum at the open.
On the downside, the USD (blue line) has been clearly the weakest currency, but for the past 60 minutes it’s trading flat and shows no momentum. The JPY (yellow line) is weakening with that real steep line down to the far right indicating it has that huge momentum we look for.
- AUD/JPY BUY
You can see how perfect the timing is and how quickly you get the profitable move when you identify that current momentum from our indicator. From the point of entry, the pair went up 60 pips.
Watch the entire video analysis below to see 1 more opportunity from today’s session:
[00:00 – 06:23]
[slide] [8 currencies on black: lilac spikes left, orange nose dives; purple down/level rt]
Hello, I’m James Edward from CompleteCurrencyTrader.com. Welcome to today’s Currency Strength Analysis training video and, today, we’re looking at how to select the best entry when you have multiple options.
And this is what the indicator looked like at the London Open from earlier today. So, if you’re to do your initial analysis, looking for strength vs. weakness, the most obvious currencies that may catch your eye initially are, perhaps, the [indicates purple line] U.S. Dollar (USD) moving down to weakness and the New [indicates lilac line] Zealand Dollar (NZD) moving up to strength.
So, if you’re quite new to trading currencies in this manner, looking at the individual currencies and matching strength against weakness, that might be the first thing that you see and would be most inclined to trade. And that certainly is [NOTE: no such word “tradeable”] trade-able.
What we don’t have, on these two particular currencies, is a steep line. Now, ideally, over here [pointer indicates] on the right-hand side, the highest probability trades are always those ones where you have very steep lines, such as what we have here on the yellow Japanese Yen (JPY) or this orange Australian Dollar (AUD) which is an even better example.
So, when you don’t have that extreme steepness on the lines of the currencies that you’re looking at trading, what I would suggest you do in that situation is place a pending order, 10 pips away from the Market and wait for that trend to continue–or wait to see if that trend does continue allaying the Market to come to you. And that will trigger your break-out trade, rather than just jumping into it immediately when, in actual fact, if you look at the [indicates flattening purple line] U.S. Dollar (USD) here, that’s pretty flat. (That’s not actually doing anything right now and hasn’t been over the last 15 minutes.) Although it is a weak currency, it is not really continuing to get weaker to any sort of degree that would warrant wanting to jump into that immediately.
So that’s one thing that you would look at; however, when you get a little bit more skilled, your eyes should be drawn to this area, here [indicates far right] where we do have those steep currency lines. And the obvious ones for me are the [orange line] Australian Dollar (AUD) [points] here and the [yellow line] Japanese Yen (JPY) moving down to weakness. Those two currencies are not the overall strongest and overall weakest looking at the past 60 minutes. But, right now, at the Open (which is the moment in time that we’re planning on trading), these two currencies are diverging away from each other very rapidly and, you do have very steep lines, which is indicative of extreme momentum in the market or increased momentum in the market.
And it is that momentum that we’re trying to take advantage of with this break-out strategy. We’re trying to jump into a trade when the momentum is picked up, taken advantage of the new financial center opening in the flurry of orders that happen around about that time, and we’re going to hope that momentum carries our trade very quickly into profit without any sort of pull backs.
So, that is actually the better trade option: Australian Dollar (AUD) against the Japanese Yen (JPY). That is the one that, as a more-experienced trader, you should be more inclined to take even though the U.S. Dollar (USD) is, technically, a weak currency and the New Zealand Dollar (NZD) is, technically, a stronger currency. It is the Australian Dollar (AUD) and the Japanese Yen (JPY) which are currently moving the most rapidly with the best momentum.
So, those are the two currencies that are giving you the highest-probability trade. And, if we go over to the–
[slide] [B&W vertical line AUDJPY.MS]
(continues) … currency strengths indicator–or the currency charts now, this is the AUD:Yen in the five-minute price bar. [indicates cross point] This is the Open [indicates bar] price bar. This is 7 A.M. GMT (8 A.M. London summertime).
So, from the Open, there, you can see that the Market has, in total, [diagonal line up from pivot, labeled “47 / 588 85.819”] gone up almost 60 pips over the course of the London morning session. (I’m not saying you would’ve been able to enter immediately at the Market.) You may have entered much higher up [indicates price bar] on this price bar.
But, let’s assume that you entered 10 pips higher up. And, even from there, you can see that the price [diagonal line up from pivot, labeled “20 / 238 85.553”] pretty quickly went straight up and you wouldn’t have been stopped there. You would’ve, at some course of the London morning, taken your 20-pip profits on the highest-probability trade. And you can see what [points to same earlier bar] that momentum did to that Open price bar there.
[slide] [previous 1st slide]
(continues) … There were a couple of other things to look at here [indicates rt blue/orange] and you may not have picked the [orange line] Australian Dollar (AUD). You may have gone for the [lilac line] N Zed D against the [yellow line] Japanese Yen (JYD). But you can also see that the [blue line] Swiss Franc (CHF) is developing here. [points blue far rt]
That probably wouldn’t catch your eye immediately, though, at the Open because that hasn’t moved as much down as the Japanese Yen (JYD). But don’t forget that you’re not in a rush to trade in the first few seconds of the Market. You should be trading when the conditions are the best for you to enter a trade. That means it might not necessarily be within the first five or ten minutes of a new financial center Open and I’ll give you an example of that by–
[slide] [all currencies near center line, left; orange/blue diverge rt]
(continues) … just fast forwarding through the indicator by 18 minutes into the Market. And this is what the Market looked like at the 18-minute point. And, what you can see now [indicates] is that of all the currencies, it was the [orange line] Australian Dollar (AUD) that kept moving up the most. So that has now stood out in over that sort of 18-minute period, 15 to 18 minutes, that would’ve become more and more obvious to you and you would’ve been much more inclined to see that and want to trade the [orange line] Australian Dollar (AUD). And, over to the weak side, it is the [blue line] Swiss Franc (CHF) that, if you’ll recall–
[slide] [1st view]
(continues) … right at the start of the Open was just beginning to move. And, then, by the–
[slide] [prior view w/all currencies near center @ left; orange/blue diverge rt]
(continues) … by the 18-minute point was rapidly moving down.
So, you could’ve entered here [indicates] on the [orange line] AUD against the [blue line] Swiss Franc (CHF). If I go over to that chart now–
[slide] [B&W price bar chart – AUDCHF.MS]
(continues) … you can see this is the AUD / Swiss Franc (CHF). [pointer indicates 1st bar initiating climb] This is the London Market Open, at this point here, and, [creates pivot point & ext diagonal line up, label “27.57? 0.698111” cursor covers 5th digit] the price has [extends diagonal line to top point rt] gone up over 60 pips in total.
But, like I said, very unlikely for you to have seen this [points London Open bar] immediately at the Open because the Swiss Franc (CHF) was only just beginning to move here. But by the time we got to this–
[slide] [previous view w/all currencies near center @ left; orange/blue diverge rt]
(continues) … stage on the indicator, which is very, very obvious–
[slide] [previous view B&W price bar chart – AUDCHF.MS]
(continues) … that’s [points] this price bar here. And, had you entered on that, even in a worst-case scenario, you’re right at the top of that price bar, [diagonal line to label “13 / 259 / 0.69096] you can see the price has still gone 25 pips up to that high point [extends diagonal line to label “43 / 308 / 0.69145] and, overall for the morning session, it’s gone up over 33 pips.
So, again, that would’ve been a high-probability trade. And that is off–
[slide] [previous view w/all currencies near center @ left; orange/blue diverge rt]
(continues) … the back of waiting for these very [indicates blue]steep lines.
So, hopefully, that has given you a good example–
[slide] [back to 1st slide]
(continues) … at the Open, today, of the London Market of being able to identify the better opportunities when you do have several opportunities available to you to make a decision about.
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.
Share this article
Learn to Trade from Top Traders
Join the CCT community and get FREE, unlimited access to all of our trading resources from top hedge fund managers and pro Forex traders around the world.Join Now