Are you trading too much? or are you trading without a bias?
You may need to step back and understand why the market moves and how to identify when the market is most likely to trend.
Watch the video to find out more…
Today, we’re going to talk about a potential trending pair of the week.
Before I jump into that, I’m going to give you examples of how looking at the strength and weakness of a currency can lead you to good trading opportunities.
At the end of the day, we want to trade smart. We want to find opportunities from a strong currency against a weak one in trending environments because they are easier to trade.
I have the strength and weakness plotted for the NZD and CHF. In the chart below, the blue line is the NZ Dollar and the Swiss Franc is the orange line.
In these scenarios, I like to look for the potential crossover. The last time that happened was on 9th of November 2020. From that, we looked to buy NZD against CHF because the NZ Dollar was stronger than CHF back then.
When trading the markets, we first need to understand the basics of a currency pair’s moves and trends. In its simplest form, it is because one currency is stronger than the other.
For example, when NZD/CHF crossed over in the strength meter, it told us that this was a good opportunity for a trending market to form. The blue line represents the NZ Dollar and the orange line represents the Swiss Franc.
The last time these two lines crossed was back on November 9, 2020, with the NZ Dollar passing above the Swiss Franc, which suggested that we should have bought the market.
If we take a look at the price back on 9th of November 2020, which is the red line in the chart below, we can see that the price broke out of the overall consolidation.
So, the strength of weakness suggested that we should have bought the market then.
What happens to the price after the breakout? The market moved until it told us to sell again, around 329 pips. Overall, it was around a 537 pip move to the highs.
The market broke out of a consolidation pattern and continued to trend higher until the lines crossed over on 29th of March 2021. The move from the breakout rallied more than 500 pips in total, offering opportunities to trade the trend.
When the price comes back, you could look for buying opportunities on the trend. Since we have a nice uptrend, the price makes higher highs and higher lows. Every time the price comes back into a demand zone, previous highs connect to support.
As long as the price comes back to support and resistance levels, we get lots of buying activity. That’s where we want to take those opportunities until everything changes.
That’s what we have on NZD/CHF now. We actually had a crossover on 29th of March 2021.
Looking back at the strength meter, the two lines crossed back over, suggesting the trend could reverse. We should see selling opportunities form after 29th of March 2021.
I think we spoke about selling NZD/CHF a couple of weeks ago because the strength and weakness suggested that the NZ Dollar was weaker than the Swiss Franc.
The price then makes a lower low, pulls back into a structure area, and rejects it. We got that nice doji candlestick from that.
The price has been moving down ever since. The market is now likely to continue the trend to the downside. We just need to wait for those opportunities.
After the two lines crossed, it suggested short opportunities for us. The market then rallied back to a resistance zone where the price has consolidated.
Looking closer at the price action, the daily timeframe formed a bearish doji candle. This gives sellers the opportunity to jump on the trend short. This could also lead to another 500 pip move if the lines do not cross back over and the price continues to make lower lows and lower highs.
The first opportunity for us is in this zone. If the price can come back up where the prices sold off from, we’ll likely see another sell-off in the market.
Alternatively, we have a level running. We could wait for the break and retest of that level for a continuation to the downside.
What’s most important is that we’re trading with strength and weakness — giving ourselves a higher probability that a trend is going to form. This also gives us a better opportunity to make profits in the Forex Market.
We hope our Forex Chart of the Day analysis helps you in your trades. Practice trading a currency’s strength and weakness with free $50,000 funding when you sign up for a free demo account at Blueberry Markets.