Market Reversals: be prepared
Today was an interesting day in the forex and stock markets. One of my many tools in my trading toolbox is identifying near term trend by seeing which way the 21ema is pointing on the hourly chart of any pair that I am getting ready to trade. Today I was watching the GBP/JPY pair, mostly because this pair has the largest daily range, so there is more potential for pips. When I started my day this morning at 5am EST, the 21ema was pointing up at a nice angle. So I started to look for a good long or buy entry. I knew that the US Fed interest rate decision later this afternoon would make a big impact on the forex and stock market so I was hoping to make some good pips before that news interupted the day. Indeed, this currency pair did quickly make a new high early in the day, but then slowly started to retrace. I exited my long trade with 0 pips, break even. But within a couple hours, price retraced back to the 21ema, and then broke through it during the 10 am hourly candle. When price breaks through the 21ema like this, and the hourly candlestick closes below it, I consider this the REVERSAL POINT. I quickly entered a short trade, all the while watching how the 21ema had then turned to point downward for the remainder of the day. I watch for these market reversal clues constantly, so that I can be ready and prepared to exit a trade and reverse it. In fact, there is a prominent spot on my daily trade sheet to mark where the 21ema is and be aware of it, so I can easily recognize these reversals. Good trading.