Tradersslog

Thursday, November 23, 2006

How to catch an implusive move


A trend-following method is the easiest way to catch a potential big move. But how do we know with strong confidence that we are riding the trend, not fighting against the trend? Here is a little trick.
On the 1440-tick EuroFX futures chart (shorter-term trader may use shorter time horizon) , we added a relatively short-term Stochastic (9,5,3) indicator and a longer-term MACD(15,105,20) indicator. On 11/20/06, we had the StochD(9), purple in color, pulled back from O/B level and the MACD histogram moved above the zero line. These are the first hints on a potential trend change.
If the price could stay above the previous low1.2790 while the StochD(9) turned up from the O/S level, a higher-high-higher-low pattern was then confirmed. It indicated that a new uptrend was emerged and we might open a long EuroFX position with protective stop loss just below 1.2790.
This trade had proved to be a good trade and we sold it on MOC with nice profits.

By the same token, EuroFX and USD/Yen are showing the similar patterns on their weekly and daily chart respectively. That means we may find the USD falling real fast in the coming weeks. Watch out.

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