Trend-following is the bread and butter of CMTs worldwide. Identifying primary trends during the nascent stage of said trend can be difficult but the real p/l is generally made during the meaty part of the move, for what is known by Ellioticians as the 3rd Wave.
One way in which technicians can identify throwbacks/pullbacks in a primary trend for re-entry is by using moving averages of different time frames. For example, it is a bear primary trend for EURUSD this year (and bull trend for DXY), so if one is looking for re-entry into short EURUSD, they could wait for price to trade back to the area of the 14-week exponential moving average and use the 30-week exponential moving average as a S/L. Why? 14 weeks is a decent sample set of data, but 30 weeks of price data, encompasses even more data. If all moving averages are sloping lower, which indicates at least a short-term trend, then re-entering the short EURUSD trade or adding to pre-existing risk at the 14 EMA provides a solid risk/reward setup. One could add an additional layer of confirmation by waiting for daily RSI to correct back to 50/60 (hat tip Connie Brown) to increase position.
All in all, we are trying to play the trend as trend-followers and not top tick or bottom pick the security, so this strategy enables one to stay in the risk and add to it within the trend.
CMT Association
Shared content and posted charts are intended to be used for informational and educational purposes only. The CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. The CMT Association does not accept liability for any financial loss or damage our audience may incur.
One way in which technicians can identify throwbacks/pullbacks in a primary trend for re-entry is by using moving averages of different time frames. For example, it is a bear primary trend for EURUSD this year (and bull trend for DXY), so if one is looking for re-entry into short EURUSD, they could wait for price to trade back to the area of the 14-week exponential moving average and use the 30-week exponential moving average as a S/L. Why? 14 weeks is a decent sample set of data, but 30 weeks of price data, encompasses even more data. If all moving averages are sloping lower, which indicates at least a short-term trend, then re-entering the short EURUSD trade or adding to pre-existing risk at the 14 EMA provides a solid risk/reward setup. One could add an additional layer of confirmation by waiting for daily RSI to correct back to 50/60 (hat tip Connie Brown) to increase position.
All in all, we are trying to play the trend as trend-followers and not top tick or bottom pick the security, so this strategy enables one to stay in the risk and add to it within the trend.
CMT Association
Shared content and posted charts are intended to be used for informational and educational purposes only. The CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. The CMT Association does not accept liability for any financial loss or damage our audience may incur.
CMT Association is a global non-profit credentialing body committed to advancing the discipline of Technical Analysis. Improve investment performance and career opportunities: www.cmtassociation.org