From time to time, the FX market will create a trending market
environment, perhaps as the result of a disparity in interest rates
among the two currencies within the pair traded. When this trend occurs,
it may be in our best interest to simply align our own trading account
in the same direction, and take advantage of this trend for as long as
it takes us.
So the next logical question may be where (or when) may
be the best place to enter the market. To answer this question, we may
call upon the use of a common technical indicator, such as a simple
moving average.
The following 4-hour chart shows the steady uptrend the
EURJPY demonstrates, as it continues to reach loftier levels on quite a
regular basis. Our up trending support level is drawn by connecting the
most significant low prices achieved over the past few weeks.
Furthermore we can see the market also tested these levels when it
traded below its 50-SMA; Simple Moving Average. This particular moving
average may differ, however serves our purposes in identifying the most
relatively oversold areas. If we limit our trades to only those periods
when the market did indeed test its support line while trading below the
50-SMA, each one of our trades assumes a relatively small amount of
risk, while providing us with the greatest potential reward if proven
correct.
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