Stanislav Bernuhov
Common Sense Trading
One of my students has sent me recently an interesting situation from the Mexican Peso chart (USDMXN). It shows quite clearly the mechanics of a trending market. Let’s go through this situation since it can be quite interesting for educational purposes.
Clue №1. The move had started when there was a dip on ATR(21).
Take a look at the move on a daily chart of USDMXN. It had soared after October 18, when volatility was at the lowest relative level for the period of several months. Usually, big trends occur when volatility drops.
Clue №2. The continuation gap.
That’s not really a gap. I call it a gap because the price behaves similarly in such situations like in a gap related ones. We see a big day which distinguishes one trading range from another. It means that the price had repositioned to a new value area (with continuation in the direction of the trend).
Clue №3. The shakeout.
It is not only important to find a good trend, but also to pick a good entry point in the direction of this trend. When the trend develops for already more than 2 months, it is no longer in an impulse phase. It starts rotating back and forth, and normally, it is quite difficult to enter a trade with a small stop in this case. Well, unless we see a shakeout to the opposite direction, just like we’ve seen on USDMXN.
Clue №4. The trading tactics.
Of course, it is very difficult to enter during a shakeout, not only emotionally, but also with a limited risk. You will have to have your stop placed at a very distant level.
That’s why, you can simply wait for the pullback, and then to play a breakout trade in the direction of the trend.
That’s a simple 4-step process, which you can start implementing in your trading today. Take a look at your charts: do you see a strong trending market now on any of your favourite trading instruments?
Good luck and have a good trading day ahead!
Trading the financial markets is associated with increased level of risk. Past performance is not indicative of future results. All materials are provided for educational purposes only and by no means may serve as a trading or investment advice.
Recommended Content
Editors’ Picks
EUR/USD clings to daily gains above 1.0650
EUR/USD gained traction and turned positive on the day above 1.0650. The improvement seen in risk mood following the earlier flight to safety weighs on the US Dollar ahead of the weekend and helps the pair push higher.
GBP/USD recovers toward 1.2450 after UK Retail Sales data
GBP/USD reversed its direction and advanced to the 1.2450 area after touching a fresh multi-month low below 1.2400 in the Asian session. The positive shift seen in risk mood on easing fears over a deepening Iran-Israel conflict supports the pair.
Gold holds steady at around $2,380 following earlier spike
Gold stabilized near $2,380 after spiking above $2,400 with the immediate reaction to reports of Israel striking Iran. Meanwhile, the pullback seen in the US Treasury bond yields helps XAU/USD hold its ground.
Bitcoin Weekly Forecast: BTC post-halving rally could be partially priced in Premium
Bitcoin price shows no signs of directional bias while it holds above $60,000. The fourth BTC halving is partially priced in, according to Deutsche Bank’s research.
Week ahead – US GDP and BoJ decision on top of next week’s agenda
US GDP, core PCE and PMIs the next tests for the Dollar. Investors await BoJ for guidance about next rate hike. EU and UK PMIs, as well as Australian CPIs also on tap.