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Trading a Trending Market
From time to time, the forex market will create a trending market environment. When this trending market occurs, it may be in a forex trader's best interest to simply align their forex 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 may be the best place to enter the market. To answer this question, we may use 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 higher levels on a frequent basis. The up trending market 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. The particular moving average each forex trader chooses to use may differ, however serves our purposes in identifying the most relatively oversold areas. If we limit our forex trades to only those periods when the trending 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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Adam Rosen, FX PowerCourse Instructor
FXCM

 

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