Identifying Trends
One way of identifying whether a particular forex pair is trending upwards or downwards is to simply plot a series of short, medium and long-term moving averages on your price chart.
I like to use the 20, 50, 100 and 200-period exponential moving averages (EMAs), but you can use simple or weighted moving averages, or use different periods if you prefer.
The point is that if the price is currently trading above all of these moving averages, then it is currently in a positive upward trend, and if it is currently trading below all of these moving averages, it is now in a downward trend.
The EUR/USD Trend
If you really want to see the bigger picture, you can plot these moving averages on multiple time frames, and if you do this for the EUR/USD pair, you will see that it is generally trading below these moving averages on every time frame.
This is true for the monthly, weekly, daily, 4-hour, 1-hour and 15-minute time frame, so it is clear that this pair is in a very strong downward trend right now.
How to Trade the EUR/USD Pair
The question is; how can you use this information to successfully trade the EUR/USD pair going forward?
Well a lot of currency traders will be looking to trade a possible reversal because there is sure to be some kind of bounce at some stage. After all, it can’t keep on falling forever. Therefore they may be looking for some kind of divergence or a significant pin bar, for example, for a chance to go long.
However this is a very risky strategy because as I said above, this pair is in a downward trend on multiple time frames, so you are always trading against the prevailing trend.
A much better strategy would be to wait for a significant pull-back and then wait for an opportunity to go short as soon as it looks like it is going to turn downwards again. That’s because it is much easier to trade with the overall trend rather than against it.
As always, I am not offering any professional trading or financial advice. I just wanted to highlight how strong the US dollar is right now, and how weak the Euro is right now because the EUR/USD pair is looking seriously bearish on pretty much every single time frame.
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