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The FX Bootcamp Guide to Strategic and Tactical Forex Trading by Wayne McDonell

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SPEED OF THE MARKET

Start your market analysis with speed. How is the market moving today? Is it range bound or is it trending? Here is an important trade hint: A market will maintain its speed until something fundamentally changes market bias.
Speed is a measurement of the market. To measure speed use medium term moving averages. For instance, you can use a combination of exponential moving averages (EMAs) such as:
• 20/60
• 21/55
• 34/89
 
Whatever seems to work for you is fine. At FX Bootcamp, we use 21/55. They are both numbers from the Fibonacci sequence, as most of our settings are.
Based on the angle and separation between these two moving averages, you will be able to define the speed of the market:
• A steep angle and large separation will indicate a fast moving and trending market.
• A shallow angle and narrow separation will indicate a slow moving and ranging market.
 
Figure 8.1 is an example of a market with a good amount of speed. It is moving up fairly quickly. This is because price is above the 21 EMA. Also note that the 21/55 EMAs are moving upward and the distance between the two is fairly large. Remember, steep angle and wide separation indicate a fast moving market that is trending.
FIGURE 8.1 Market With a Good Amount of Speed
Source: DealBook® 360 screen capture printed by permission. © 2008 by Global Forex Trading, Ada MI USA
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