Short Term Currency Trends

Most of the time, markets don't show any visible clear trend - they bounce back and forth between support and resistance levels. This sideways movement is called a trading range.

Below is a strategy that may help you in identifying entry points on short-term trends, whilst protecting your profits with trailing stops.

Trade Set-up

The strategy uses two charts with different time periods (10-minute and hourly), along with two technical indicators: a 200-bar moving average and a 14-bar slow stochastic study.

1st Step : Identify a Trend

Compare the moving averages on both charts. A trend may be developing when price is consistently above or below the moving averages on both charts.

2nd Step : Pinpoint entry

Once you've identified a trend, look for the following two conditions at the same time on the 10-minute chart:

1. Price is no more than 20 pips above (to buy) or 20 pips below (to sell) the MA.

2. The "fast" stochastic (%K) crosses above the "slow" stochastic (%D) below 20 (to buy), or crosses below the "slow" stochastic above 80 (to sell).

3rd Step : Ride the trend

Set a trailing stop after the trade entry.

On a LONG position, the stop order should be 10 pips BELOW the 200-period MA on the 10-minute chart. You'll RAISE the stop as the trade goes in your favor.

On a SHORT position, place the stop 10 pips ABOVE the MA. You'll LOWER the stop as the trade goes in your favor.

I hope this helps ! Test this out on a demo platform like eToro or ibfx practice accounts before you go live !

Moving Averages

Types of Moving Averages

One of the most widely used indicators - moving averages, help traders verify existing trends, identify emerging trends, and view overextended trends about to reverse. As the name suggests, these are lines overlaid on a chart that "average out" short-term price fluctuations, so you can see the long-term price trend.

A simple moving average weighs each price point over the specified period equally. The trader defines whether the high, low, or close is used, and these price points are added together and averaged, forming a line.

An exponential moving average weighs more recent price data in a different way. An exponential moving average multiplies a percentage of the most recent price by the previous period's average price.

A weighted moving average gives more emphasis to the latest data. It smoothes out a price curve, while making the average more responsive to recent price changes.

It can take a while to find the best combination of moving average and period length for your currency pair. The right combo will make the trend you're looking for clearly visible, as it develops. Finding that optimal fit is called curve fitting.

Usually traders start by comparing a few time frames for their moving averages over a historical chart. Then you can compare how well and how early each timeframe signaled changes in the price data as they developed, then adjust accordingly.

When you've found a moving average that works well for your currency pair, you can consider this as a line of support for long positions or resistance for short positions. If prices cross this line, that often signals a currency is reversing course.

Here's an example of how it works :

Longer-term moving averages define a trend, but shorter-term MAs may signal its shift faster. That's why many traders watch moving averages with different timeframes at once. If a short-term MA crosses your longer-term MA, it can signal your trend is ending - and time to pare back your position.

I hope this helps ! See below video for more info.

Technical Analysis to Predict Price Movements

In brieft, technical analysis attempts to forecast future price movements by examining past market data.

Most traders use technical analysis to get a "big picture" or macro view on an investment's price history. Even fundamental traders will glance at a chart to see if they're buying at a fair price, selling at a cyclical top or entering a choppy, sideways market.

Technical analysts make a few assumptions as below :

• History repeats itself in regular, fairly predictable patterns. These patterns, generated by price movements, are called signals. A technical analyst's goal is to uncover a current market's signals by examining past market signals.
• Prices move in trends. Technical analysts believe price fluctuations are not random and unpredictable. Once an up, down or sideways trend has been established, it usually will continue for a period.
• All market fundamentals are reflected in price data. Moods, differing opinions, and other market fundamentals need not be studied.

Getting in and get out of the FX market at the right time

Traders rely on price charts, volume charts and other mathematical representations of market data to find the ideal entry and exit points for a trade. Some studies help identify a trend, while others help determine the strength and sustainability of that trend over time.

Technical analysis can add discipline and minimize emotion in your trading plan. It can be hard to screen out fundamental impressions and stick with your entry and exit points as planned.

While no system is perfect, technical analysis helps you see your trading plan through more objectively and dispassionately.

Price chart types

Bar charts
The most common type of chart. Each bar represents a period of time - a "period" as short as 1 minute or as long as several years. Over time, bar charts show distinct price patterns.

Point & Figure Charts
Point & figure patterns resemble bar chart patterns, except Xs and Os are used to mark changes in price direction. Point & figure charts make no use of time scale to associate a certain day with a certain price action.

Candlestick Charts
Instead of a simple bar, each candlestick shows the high, low, opening and closing price for that period of time it represents. Candlestick patterns provide greater visual detail as they develop.


Technical Indicator Types

Trend
Trend indicators (moving averages, trend lines) smooth price data out, so that a persistent up, down or sideways trend can be easily seen.

Volatility
"Volatility" (Bollinger Bands eg)refers to the magnitude of day-to-day price fluctuations, whatever their directional trend. Changes in volatility tend to anticipate changes in prices.

Strength
Strength indicators describe the intensity of market opinion on a certain price by examining the market positions taken by various market participants. Volume or open interest are the basic ingredients of strength indicators.

Cycle
Cycle indicators indicate repeating market patterns from recurrent events such as seasons or elections. Cycle indicators determine the timing of a particular market pattern. (Example: Elliott Wave)

Momentum
Momentum indicators determine the strength or weakness of a trend as it progresses over time. Momentum is highest when a trend starts and lowest when the trend changes.

When price and momentum diverge, it suggests weakness. If price extremes occur with weak momentum, it signals an end of movement in that direction. If momentum is trending strongly and prices are flat, it signals a potential change in price direction. (Example: Stochastic, MACD, RSI)

Support/Resistance
Support and resistance describes the price levels where markets repeatedly rise or fall and then reverse. This phenomenon is attributed to basic supply and demand. (Example: Trend Lines)