Clean Trends on FOREX Charts

May 13, 2008: 11:40 AM CST

I’ve been doing some simulated trading on some FOREX cross-pairs and have been thoroughly impressed with the ‘trendiness’ that occurs with greater stability than stock index charts.  I wanted to highlight three recent examples of this concept which is exciting to me.

A ‘trend’ is a series or progression of higher highs and higher lows with even or ‘comfortable’ swings between them (vice versa for a down-trend).  There are few erratic moves and the price action is typically contained by a key moving average, especially the 20 period exponential.

The trend structure allows for clean and elegant entries, stop-loss placements, and profit target placement.  These are the ideal environments for traders, but they set-up less frequently than traders like.

Might FOREX offer a greater degree of stable trendiness intraday?

First, let’s look at the Euro/Japanese Yen 5-minute chart on May 9th (you’ll need to click on these images so you can view the larger size)

Notice the price rolling over early in the morning (1:00am) and then the trend developing at 3:30am which progressed with a stable series of lower lows and lower highs, with each lower high terminating at the falling 20 period moving average (thus setting up a trade).

All trades profited and none were even threatened with the stop (traditionally above the 50 period average) being threatened.

Next, let’s view today’s action in the Euro/Japanese Yen cross (as of 11:00am CST):

We see the same pattern of a breakout and then when the moving averages cross (6:30 am) a large trend move (momentum move) is underway, with the 20 period moving average setting up good trade ideas.  Price never breached this level and set up three quick and easy trades (without complicated mathematical indicators).

Finally, let’s step back a day to May 12th and view the Euro/US Dollar pair:

Again, we have a breakout and uptrend (as defined by the moving average orientation) and then price pulls back near the 20 period average and sets up trade ideas.  The strength of the trend was so powerful that price couldn’t complete a full retracement to the key average.

I’m encouraged by what I’m practicing in the FOREX markets, and see potential here.  Don’t be surprised to see me post more charts with clean entries/exits and targets in the near future!

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