As shown on the chart below, Daily price action has been consolidated within a flag pattern while holding steady above our key EMA’s and support area.
Prior to making its latest highs at $1.30, price was able to break its previous highs at $1.28 with a steady flow of Bullish momentum.
In the intraday 4h timeframe below, price has been steadily consolidating within the trend lines of the daily flag pattern. Most recently the Forex pair has printed a 4H Bullish Engulfing candlestick which is supported by the intra-day support and all three of the our key EMA’s
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You can use a combination of confluences to confirm the direction of a trend. To start there are 3 types of phases in the market and two of them are considered trends
In this article I will discuss what tools I use to identify Up Trends and Down Trends.
Consolidations or side ways price action
As a price action trade the #1 tool I use is price itself. Before looking at any indicators or moving averages you should start your analysis by analyzing the current price action. To confirm an Up Trend I look to see if price has made at least one:
For example in the chart below by making at least one high lower give me the opportunity to draw a trend line .
To confirm a Down Trend I look to see if price has made at least one:
As show in the chart below, we look for the opposite of what we see in an up trend. We want to see price making at least one Lower High.
Moving Averages (MA)
Moving averages are a great tool to use to identify trends within a market. There are several ways you can use MA’s to analyze price action. One of the ways is to decide if price is trending above or below a certain MA. Remember ! The first step of identifying a trend is to confirm it with price action, Higher High and Higher Lows or Lower Highs and Lower Lows. Only after confirming the trend using price action, should you consider the behaviour and the placement of the MA’s. You can use MA’s several different ways to confirm the direction of a trend. The most simple way to confirm a trend using MA’s is to see if the MA is above or below the closing price of a Forex pair or any security.
Price > MA = Bullish
Price < MA = Bearish
Different MA’s will confirm the trend types. For example, price closing above the 50MA will let you know that the medium – long term trend now Bullish. But price closing above the 20 or 13 MA will indicate that the short-term trend is bullish.
For an example:
When a short-term MA crosses above the long-term MA, this indicates a Bullish trend and when the Short-term MA crossed below the long-term MA this indicates a Bearish trend. For an example:
AUDCAD has been steadily moving down in price for better part of 2019 and has started to consolidate since August of this year. As seen on the chart below we have our first Higher low which is further support by Bullish MACD divergence.
Moving down into the 4H timeframe, price has made a move up towards the 0.902 zone and now has pulled back to key support area which is signified by the horizontal price support and all three of our key EMA’s wrapping below current price.