Clean Overnight FOREX Trend Trades

May 28, 2008: 11:03 AM CST

Often, the Foreign Exchange currencies markets (FOREX) offer cleaner trends and simple set-ups for astute traders, and I wanted to show an example of one of these clean examples that occurred last night on the Euro/US Dollar cross.


(Click for full size image)

Even if you don’t trade FOREX, the patterns in this chart are worth studying.

Going into the midnight hour, the EUR/USD pair was in an uptrend but beginning to show signs of divergences, signalling a potential top (not shown).

At 2:00am, price made a new momentum low, as well as a new swing low, which clued us in that a trend reversal might be on the horizon, and to monitor the next swing for confirmation.

Indeed the next up-swing, just after 2:30am, formed a hammer (or slightly a doji) candle at the 20 period moving average it had just breached.  That was another warning sign that the trend might be changing, which was then confirmed (horizontal arrow) as price took out the recently formed swing low beneath the 20 and 50 period moving average.  One could put on a core trade here and play for a large target, or could begin playing the down-swings only as they developed.

The next swing down made yet another momentum low, forecasting higher probabilities for continuation of the newly developed trend.  The next entry came at 4:30am with two doji candlesticks at the falling 20 period moving average.  Typically, in a strong trend, the 20 period EMA will serve as a clean area to enter a trade and play for the most recent swing low (conservatively) or just beyond it.

The next swing low occurred at 5:30 with price at the daily S1 pivot line (pink dots) which set up a spot to close the short trade, or (aggressively) play long to target the falling 20 period moving average.

Once price indeed did retrace to this average, it was time again to get short and play for the same target structure (conservatively for the prior swing low only, or just beyond it).

All stops are placed conservatively above the 20 period EMA or aggressively beyond the 50 period EMA.

You would continue to play the structure of the downtrend as it continued until:

1.  Price breached the 50 period moving average
2.  The moving averages crossed
3.  Price made a higher low and a higher high

The trend structure did just that shortly after this chart was taken, and the price did crest above the averages, only to retest the prior low at 1.56160 by 9:00am.  Nevertheless, both the core trade and the swing trades yielded profit, and aggressive trading tactics (leverage at the key entry points which is then taken off as price retests lows) could have yielded even more profits.

Otherwise, this was just a fun examples of how trades develop and how to trade a trend structure with simplicity as it develops.

2 Comments

2 Responses to “Clean Overnight FOREX Trend Trades”

  1. Forex Tips and Tricks Says:

    very nice article…
    keep the good work!

  2. Forex Tips and Tricks Says:

    very nice article…
    keep the good work!