subject: How To Determine Whether The Trend Is Strong? [print this page] You can compare a trend to a riverYou can compare a trend to a river. It is always easier to paddle in the direction of the river! Your speed of paddling can be assisted by the speed of the current. For if the current is real strong, you can make a fortune.
What this means is that a strong trend cannot be sustained in the forex market without the pouring of tremendous amount of capital in the market by the big players. This is unlike the stock market where few big players placing orders can drive the stock price up.
Now past observations have shown that a strong trend in the forex market has a strong tendency to pullback to a key moving average before resuming the trend.
What we need to do is to add a filter based on this exponential moving average (EMA) in order to be sure that this is no ordinary trend.
As we have said before, in a strong trend, our main focus will be the 10 day exponential moving average. Now, in case of strong uptrend, you should find the 10 day Exponential Moving Average (EMA) above the 20 day EMA and the 20 day EMA should be above the 50 day EMA. In other words, the three moving averages should appear like this on your daily chart; 10 Day EMAis above the 20 Day EMA which is above the 50 Day EMA. Now, when you find such a setup, it means that the probability that this uptrend is going strong and has big money backing it is strong. However, just in order to confirm that the uptrend is strong, you should confirm that the price action is above the 10 day EMA for at least the 10 last candles.
The 20 day EMA should be above the 50 day EMA and the 50 day EMA should be above the 100 day EMA. In addition to that the price action should have been above the 10 day EMA for at least the lat 10 candles to confirm that this uptrend is indeed strong.
Now, in case of a downtrend, how to determine that this downtrend is strong and is backed by big money in the market. For that you need to confirm that the 100 day EMA is above the 50 day EMA. The 50 day EMA is above the 20 day EMA and the 20 day EMA is above the 10 day EMA.
Once, you have the above conditions fulfilled, you have a strong trend confirmed. A strong trend means that big money in the market is moving this trend and this trend can continue for quite sometimes. Trading a strong trend can be highly profitable. So, once, you spot a strong trend, get ready to enter it. As said above, your entry should be based on the 10 day EMA. Good Luck!
