If you want to become a successful trader, you should immerse yourself completely in the subject in order to find your edge. In case, you are already a winning trader than you should know exactly what your edge is.
The sharp moves often seen in the forex markets can be difficult to trade and often interpret even by advanced traders. Learning to read and interpret price action can be a huge advantage.
When the market is in a steep decline, one should be careful to measure the reaction of the longs. You must try to know and understand if the move has the chance to turn into a rout.
By looking at the reaction of the longs as soon as the rate begins to go south, you may be able to determine if the market is sitting on a large number of long positions. If the spike is followed by a sharp V recovery, you should be wary of shorting the pair.
Many buyers entering the market at lower levels tell you that the market is not heavily long. These lower prices mean bargain prices for those wishing to accumulate long positions.
Moving averages (MAs) are one of the oldest, true and tested indicators. The most widely used moving averages are the 50, 100 and 200 day MAs.
Moving averages are essentially lagging indicators and relate to the past price action. MAs can be used effectively in intra day trading for entering and exiting positions in one way markets.
During times of sharp price moves, it becomes difficult for the traders to enter a position as retracements are far and few. This makes most of the traders confused and forces them to start taking arbitrary decisions.
MAs can be used as dynamic resistance levels in such situations. This can give better results than the static support/resistance levels used by majority of the traders.
The advantages of using Moving Averages like this gives you dynamic levels to trade off and gauge price action taking place in the market. This will help you avoid using arbitrary levels in entering or exiting a position.
By Ahmad Hassam