Weekly Trading Lesson: Trending Markets and the Ideal Entry Price

From time to time, the FX-market will create a trending market environment, perhaps as the result of a disparity in interest rates among the two currencies within the pair traded. When this trend occurs, it may be in our best interest to simply align our own 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 (or when) may be the best place to enter the market. To answer this question, we may call upon the use of 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 loftier levels on quite a regular basis. Our up trending 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. This particular moving average may differ, however serves our purposes in identifying the most relatively oversold areas. If we limit our trades to only those periods when the 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.