Forex Hourly Trading Technique

Here’s a forex trading technique intended for swing traders on hourly charts. However, it can be equally helpful for the short term. The catch is, it’s only valuable for trending currency pairs.

Below is the hourly chart for the U.S. dollar versus the Canadian dollar, currency pair USD/CAD, enlarged to show greater detail:

The currency pair is exiting a small and choppy downtrend and appears to be attempting a reversal although the new trend has not yet been confirmed. Volume has fallen off and the many doji, scattered amongst long and dramatically long candles graphically illustrates market uncertainty.

The indicator in the lower window is the average directional movement index (ADX), set to “look back” over 14 time periods. The blue-green ADX line shows the strength of any underlying trend for the currency pair:

• a reading above 30 indicates a trend in place;
• a reading below 20 indicates no trend;
• a rising line between 20 and 30 indicates a trend is attempting to begin; and
• a falling line between 30 and 20 indicates an existing trend is possibly ending.

The pink dashed line illustrates selling pressure (negative directional movement index, or −DMI) and the olive drab dashed line illustrates buying pressure (+DMI).

The light blue line on the chart itself is a five period exponential moving average (EMA-5) and the dark blue line is the same with a ten-period lookback (EMA-20):

• when the shorter-term (light blue) EMA-5 is above the longer-term (dark blue) EMA-10, prices are rising; and
• when the longer-term EMA-10 is above the shorter-term EMA-5, prices are falling.

These indicators form the basis of this trading technique.

As the currency pair’s price action begins to rise with the attempted bullish trend, the blue-green ADX line begins to rise, as well. The EMA-5 line crosses above the EMA-10.

The vertical purple line marks the trade’s entry point at 1.0180, as the rising ADX crosses above the 25 level (the silver-grey horizontal line in the indicator window). More cautious traders may wish to wait until the ADX reaches 30, or until the price action rises above the minor resistance level at 1.0205, marked with a horizontal yellow line.

The price does rise above resistance, then turns and re-tests it from above, as support: