Above is a screenshot of three timeframes of the AUDUSD currency pair which are the 4h, 1h and 5m respectively. Naturally enough it could be any pair as this is for illustration purposes only.
So, three timeframes descending from the largest to smallest. Even just a quick glance at these makes it blatantly obvious that the value of the Australian Dollar is for the meantime losing ground against it's U.S. counterpart. Now in this example that maybe the case however it does not always look so evident.
In order for a validation of price action (PA) bias we add a moving average (MA), which in this case is a 100 simple moving average (SMA). Why a 100 SMA? Good question, well basically I find it works well since institutional investors which includes banks tend to make good use of it. Hey but let's not get picky on technicalities shall we.
Anyhow what I wish to do is explain the individual components of the plan then show how it all fits together. Now the lesson that comes out of this exercise is 'what is the PA bias? Well clearly it is to the downside, since price is below the MA in all three timeframes. right? So in this case we maybe looking at going short (sell) on the Aussie Dollar.
I say maybe because this is only a 1st stage confirmation. There are more lessons to come. One other point to cover here is that this stage can only be ticked off for a green light when price is above or below the 100 SMA on ALL THREE TIMEFRAMES. If they don't match, it's clearly a no go.
Ok I hope the first part is clear enough, if you have any questions please put them in the comments. The second lesson covers an area not much talked about. The currency interest swap rate. Component number 2.
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