Moving average consolidation trade (25/6/07) EURJPY +66 pips

December 26th, 2007 expert Posted in FOREX TRADING ENTRY STRATEGIES |

Onlone Forex Trading Concepts: Multiple moving averages, Consolidation market, Moving average crossover exits

Often in the Asian Forex market does not have the volumes to dramatically move the forex prices. During these quite trading sessions the price tends to consolidate. A group of moving averages based on different time spans gives a good visual confirmation of this (See the chart). What is essentially happening is that short term and long term traders are  agreeing on the current price levels and that is way the moving averages consolidate. This does however also mean that the slightest bit of news or a big buyer or seller entering the forex market could disturb this balance and often a strong breakout occurs.

This is what happened with the EURJPY yesterday and the moving averages started to consolidate on the 15 min chart. The price was trading in an upward sloping channel but made a failed swing (The price did not go to the opposite side of the channel) indicating a break downwards. An entry order sell was placed just below the lower channel support and a stop at the last high (20 Pips). As the eastern Europe volumes started moving into the market the break was given momentum and the price slowly broke downwards during the European session.

The question then was when to exit? Moving average crossovers are great for exits (but not always good for entries as you will experience many whipsaws). The exit was manually done on the close of the bar which confirmed the moving average cross overs of the fastest moving averages. The disadvantage of this is that you need to watch the deal to manually exit.

The moving averages for the chart are 5, 8, 31, 21, 34, 44 and  55.