Posted by forex at 5:25 AM
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The Sweet Spot
1. Go to FreeStockCharts.com. You may need to download its Silverlight plug-in. Once you're logged on then pull up a chart with the 10-day SMA (simple moving average), the 20-day SMA and the 30-day EMA (exponential moving average) overlaying the price action.
2. Scan the currency pairs on the price search portal and observe the price action on the price chart. You want to look for the 'Order of Things' in assessing the trend. Price for the currency pair you're analyzing should be above the 10-day SMA, the 20-day SMA and 30-day EMA for an upward trend is the 'Order of Things' for a long position. Conversely, when price for a currency pair you're analyzing is below the 10- and 20-day SMAs and 30-day EMA for a downward trend you have the proper 'Order of Things' for a short position.
3. Prepare to enter the trade when price action pulls back from its high but without piercing the 20-day SMA. It's OK for price to pull back into the 10-day SMA but if it pierces the 20-day SMA or the 30-day EMA, then the trade setup is void.
4. Trade off the high of the price bar that establishes the lowest low made but without going below the 20-day SMA and the 30-day EMA. Once the price trades above the high of that price bar then momentum re-establishes itself to the upside and you want to latch onto that move. Set a stop underneath the lowest low of that bar, so that if it is hit, then you know momentum is lost to the upside and you protect yourself from any further downside risk.