*Taking a look at multiple price trends within the same financial instrument*
Welcome back to the blog. In this post I am going to show you the NZDJPY FX currency pair that I am currently trading and explain how multiple trends appear within the markets and how they can be traded alongside each other. I will also give you an update on my other open trade positions.
Before I start, I just want to remind you of the “Free shares” offer that is currently available through a new trading brokerage and the best part is that it doesn’t cost you a penny. Simply open an account with STAKE, deposit £50 to receive a free share worth up to $120 and then sell the share and withdraw your £50 and the free money you just made
I explained the process in more detail in Tuesdays blog post which can be found by clicking on the following link. https://diaryofafinancekid.com/2020/10/06/free-money-how-to-get-free-shares-in-public-companies/
Let’s get right in to it and take a look at the first chart.
The chart above shows the 1hr intraday timeframe chart for the NZDJPY FX currency pair with both of my short trade positions visible (see arrows). I have also annotated some basic points of analysis for you including the swing highs and swing lows of the last 7 days worth of price action and a basic trendline.
Since entering my first short trade position at just below 70.200 last week, price went on to form a double top rejection of that price resistance zone before selling off through the beginning of this week. I have drawn a bullish trendline on the chart above which was broken to the downside before price formed 2 consecutive lower lows on this timeframe. I entered a second short trade position on the lower high after the trendline was broken and it was clear to me that the existing bullish trend was now likely reversed. Included in the analysis of this scaling in position I used the alignment of the 50 and 200 EMA’s, and a few other points of analysis.
The reason for writing this blog post is to show you how multiple trends form across different timeframes on the same instrument, in this case the NZDJPY FX currency pair, and how you can use this to your advantage and enter multiple positions. I am now going to show you what I mean by multiple price trends and then come back to the NZDJPY currency pair and explain why this is a good example.
Identifying multiple price trends.
A lot of my trading activity is trend based and revolves around my ability to successful identify the prevailing trends depending on the timeframe I am looking at and want to trade. This is something that can be easily taught but takes time and practice to master and even then, it is not 100% accurate but certainly can be profitable.
The price movements of an asset or security like an FX currency pair will often move in waves however, the key to successfully trading these waves is to know when and where they are likely to form next and get involved. You should also be aware of when they are likely to end and why. Let’s look at a basic line chart example.
Let’s assume you are looking at the 1 hour or 4 hour timeframe price chart and you see price forming a bullish trend like the one shown above. If you are looking at this timeframe chart only, it is safe to assume that the trend is bullish and buying in to it will produce the best trade entries. From there you can use technical analysis such as EMA’s, the trendline, fibonacci retracement levels and support/resistance to find where the next bullish wave will form and enter a long position.
This is perfectly fine if you are wanting to trade only this timeframe but unfortunately price does not move in waves only on one single timeframe. Price is constantly moving and you must look at the bigger picture because this bullish trend on the 1 hour timeframe is part of a bigger trend. This is why I constantly talk about higher timeframe analysis and, unless day trading, I will always show you weekly or daily timeframe price charts in my analysis.
In our hypothetical line chart scenario, if you were to go out of the 1 hour timeframe chart and look at the weekly timeframe chart there is a very strong possibility you could see something like the image shown above – a bearish trend. And this is exactly what I mean when I say multiple price trends or trends within trends.
The bullish trend you identified on the timeframe you first took to trade is actually the counter trend or retracement inside a much larger opposing trend and you could quite easily find yourself trading against this trend at the wrong time. Don’t get me wrong, there are multiple points within the counter trend that can produce perfectly good trade positions but it is very important to know how price is moving in the bigger picture to make sure you have the best possibility of success.
Buying in to a bullish trend on a lower timeframe when price is approaching a potential reversal point on a larger bearish trend is likely to be a less effective and potentially losing trade. Much like selling in to a bearish trend when on a higher timeframe price is bullish, will potentially create a losing position. An example of this scenario can be seen below.
By identifying all of the price trends currently in play on an instrument, you then have a much greater idea of where price reversals will occur and how price is likely to move over the next few hours, days and weeks. This can then be used to position your trades effectively.
Use multiple timeframe trends to know if you are trading the current trend or just a counter trend within a bigger opposing trend. Use multiple timeframe trends to trade alongside the direction of both the lower timeframe trend and higher timeframe trend.
The chart above shows the ideal series of positions where multiple timeframe trends align in the same direction. Instead of trading against the bigger picture with your short term positions, you are trading alongside the bigger picture with trade positions that can have the potential to go a lot further in your favour. The image above is very similar to my current trade on the NZDJPY FX currency pair.
The chart above is the higher timeframe weekly price chart with the clearly identifiable bearish trend. In this scenario I have waited for this to occur and then used the lower timeframe chart to find my trade position entries to get involved. This way I am making sure that the multiple timeframe trends are aligned and I have the best chance of success.
The chart below is the 1 hour timeframe chart that shows how the lower timeframe chart is also now bearish.
If my trend analysis is correct and the higher timeframe bearish trend continues alongside the new 1hr bearish trend, I predict we will see more bearish waves and selling through the rest of the month. This would provide more opportunities to sell into the lower timeframe trend whilst benefiting from the higher timeframe bias.
Other trade positions.
Spot Gold Long Trade @ $1880 /oz
Gold has found support at $1880 for the past 2 weeks and I believe this is still a very good level to be buying at as a play on future inflation and USD weakness coming in to the final weeks of the U.S. elections. Further fiscal stimulus is inevitable in the U.S.A no matter who wins the election and this will have a continued effect on the dollar.
In regards to technical analysis, the daily 50EMA is still way above the 200EMA and price is trying to break back above the 50EMA once more. The trend is still bullish and unless the current price support is broken with some momentum, I see no reason why more upside isn’t to come. I have price targets at $2000 and $2200 per ounce.
FTSE100 Short Trade @ 6312.00
I believe the FTSE100 index is still a great bearish play both technically and fundamentally. From a technical perspective, price on the higher timeframe charts is still in a bearish trend with lower highs and lows being made most weeks and the 50EMA firmly below the 200EMA and price bouncing off of the 50EMA.
With the Brexit deadline looming, EU and UK tensions rising and also the coronavirus pandemic causing local lockdowns to persist, I see no reason why the FTSE100 will increase in value any time soon. Our economy is struggling and lack of useful leadership is going to weigh heavily on the U.K.
My main intention for this blog post was to show you how price trends are not just apparent in the timeframe you are currently looking at but instead part of a much bigger “system”. I also want you to see that higher timeframe analysis is important and it is not a futile act to be checking the bigger picture in order to make sure your positions have the best chance of success.
There is no point buying into a trend when price is approaching a potential reversal zone that is likely to see price move against you. Instead, work on finding those trade positions where everything is in alignment.
If you are interested in learning my personal trading strategies, please consider my Mastering The Markets – Retail Trading Course. Head over to my Trading Education page to check out all of my education packages and the deals available.
All my technical analysis is done using the TradingView platform. You can get access via the link below.
My preferred broker of choice is IC Markets. Low spreads and trading costs really help long term profitability. A link to their site is below.
FTMO Trader Funding Programme.
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DISCLAIMER: None of the information posted on this site is to be considered investment/financial advice. Trading is high risk and you should only trade with money you can afford to lose.