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Whipsawing Explained

If you’ve found yourself on the wrong side of a trade more than once during a short period of time oftentimes it’s due to whipsawing.

Whipsawing occurs when price forms a setup in one direction and then traps traders before reversing.  The behavior can continue for several consecutive days, weeks or months, depending on the time frame, and is quite common leading up to major economic events.

In this article, I will explain two of the most common types of whipsawing.

  1. Price falls short of Supply and Demand zones.  In this type of whipsawing price creates a setup, traders enter the market in the direction of the setup, traders are trapped as price comes up short of hitting the next level of Support or Resistance and reverses.
  2. Price triggers orders at Supply and Demand zones.  In this type of whipsawing price triggers breakout orders.  Many traders place BUY STOP entry orders above levels of Resistance and SELL STOP entry orders below levels of Support.  When price is whipsawing, price extends beyond the level of support or resistance, triggers the STOP entry orders,  and then reverses trapping traders.

Watch this video as I explain and show examples of the two most common types of whipsawing.

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An Inconsistent EUR story

The US session closed with mixed results on EUR.  Although the intraday trend of the EUR was bullish the bigger picture shows mixed results.

On the Daily chart, EUR/AUD, EUR/CAD, EUR/JPY and EUR/NZD hit resistance.  The EUR/CHF, EUR/GBP and EUR/USD are trading above Support.

EUR pairs trading above Support are more likely to become range bound while those that are trading below Resistance could potentially move lower.

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How To Identify a Strong Trend

Identifying a trend in Forex

A Simple Method for Identifying a Strong Trend

Most traders have heard the saying “The trend is your friend until the end”.  This is true, which means that knowing how to identify a strong trend is especially important for new traders and thus aiming to increase the risk-to-reward ratio of their trades.

In this article, I will explain the easiest, newbie friendly method for identifying a strong trend in Forex or any other financial market.  This technique can be applied to any trading time frame and high liquidity financial trading instrument.

  1. Place two moving averages on your chart.  I am using the 10 and 15 period exponential moving averages calculating on the close.
  2. Look for a noticeable amount of space in between the two moving averages.  The more space in between the moving averages the strong the trend.
  3. Price is not touching the moving averages.  During a strong trend with increasing bullish or bearish momentum, price will outpace the moving averages and either won’t touch the moving averages at all or will touch the moving averages briefly, usually forming a wick.

In This Video I Walk You Through the Steps of Identifying a Strong Trend

Additional Resources

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Intraday Trading Opportunities – April 20, 2017

This week the market is offering much welcomed trend trading opportunities for the New York session.  This is following several weeks of less than ideal trading conditions for the New York session due to choppy price behavior leading up to and following Brexit Article 50 activities.

CAD Weakness

The Canadian Dollar continues to be weak.  However, after several consecutive days of bearish momentum the CAD is showing a slight decrease in momentum.

Trading Opportunities

Traders looking for an alternative to trading the CAD should consider taking advantage of a bearish US Dollar.  Buying opportunities on the AUD/USD and EUR/USD and selling opportunities on the USD/CHF have the highest probability for follow through during today’s New York session.

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Intraday Trading Bias for USD

Intraday Trading Bias for the US Dollar

The intraday price charts have become increasingly choppy over recent weeks.  However, intraday traders can still find profitable trading opportunities by looking for an overall directional bias of a specific currency.

For April 6, 2017, the intraday bias for the US dollar is bullish.

Keep in mind that the market is choppy and is trading in a tight range.

Traders should take current market conditions into consideration when setting profit targets.