Three Simple Ways to Predict Which Way a Currency Will Move Next

In my early days of investing, I have to admit – I didn’t know much.

I was a young kid in my 20s. I was gullible. I blindly followed whatever the so-called analysts of the day were telling me to buy.

It took me a while to realize many of these big shots didn’t know what they were talking about.

They were just repeating whatever their bosses told them to say. That’s why you never heard these “experts” give a stock a sell rating. If they wanted to keep their jobs at major brokerage firms or institutions, these guys would just keep telling you to buy or sell.

Like I said, I caught on to their game.

So I came up with another plan of attack to invest in the stock market that I now use to trade foreign currencies.

This simple strategy lets you predict where certain currencies are heading next. Once you know which way currencies are heading, you can jump in and grab the most profits.

Today, I want to offer you this strategy as a cure for bad stock advice. These three techniques all revolve around price action.

Tip #1: Watch the Currency’s Price

It sounds strange, but most things you want to know about a currency are all hiding in the currency’s price. To really see the price, you need to look at that currency’s chart.

Once you do, you will notice certain patterns that allow you to predict which way a currency will move next.

Certain patterns will allow you to know whether there are more buyers or sellers. This in turn will give you a good idea as to whether the currency will rise or fall.

I love the simplicity of this strategy. By just looking at a currency’s price, it’s possible to see what the currency is doing. It’s as simple as looking for a certain shape – and knowing what it means.

This gives you a consistent, systematic, definitive way to know when you should be buying or selling.

It also gives you a lot of confidence in your trades. And you don’t have to turn on your TV and listen to the so-called market experts to know what’s happening.

What’s great is this type of analysis (called technical analysis) works better in currencies than in stocks. All you need to do is look at the charts and it’s easy to see which way currencies are heading.

Tip #2: Let the Moving Average Tell You Which Way to Trade

One of the best ways to follow a currency’s medium-term trend is to place a 50-period simple moving average (SMA) on a currency pair’s daily chart.

Check out an example below.

Don’t Know Where the Pair is Headed? Let the SMA Guide You

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If the moving average line is distinctly pointing down, then it’s telling you that the odds favor short-sellers, not buyers. In other words, bet on this pair falling further. Sell short as upward rallies stall under the moving average. (Short signal shown above in red)

When the moving average pointed higher, then the best probable trade would be to buy this currency pair. Buy pullbacks close to the upward sloping moving average.

By using this simple tool, you can gain a significant edge.

Tip #3: Watch for the Breakout

There’s a specific chart pattern that I want you to be able to recognize. It’s fairly easy to see – and it can help you see when currencies are about to break out.

It’s called a “triangle.”

Triangles form on charts when buyers and sellers can’t quite make up their mind about a currency. About half want to buy, while half want to sell. So we have a tug-of-war going on.

But here’s a secret for you: Most of the time, currencies break out in the direction they were heading before the triangle began in the first place.

For example, we had a nice triangle in the British pound a while back. As you can see, the GBP/USD was heading lower. Then a triangle took over…

Triangle Patterns Say a Breakout Move is Dead Ahead

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As the pair broke out of the triangle, it resumed its long-term downtrend, as shown by the triangle on the right.

So as a trader, if you saw a triangle forming, you would want to watch for the breakout because you know a sharp trend is coming soon.

Even better, you can determine a minimum price target (the least this currency will move after the breakout) by looking at a triangle.

What you do is measure the open side of the triangle. That’s your measuring stick. Then you use that measuring stick to see how high the currency will climb if it breaks out higher… or how low the currency pair will go if the pair breaks out to the bottom side of the triangle.

So if you want to learn how to trade currencies, start by looking for some simple patterns.

This way, you don’t even have to be aware of the economic data for these economies. You don’t need to listen to the so-called experts ramble on about what to buy. All you need is a price chart and you can learn to be successful trading currencies.

There will be much more on currencies and what to look for coming directly out of our Global Currency Expo later this week.

Have a nice day!

Sean Hyman
Editor, Currency Cross Trader

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