Welcome to my Masterclass.
In this lesson you will learn what the foreign exchange market is all about and how we are able to take advantage of the worlds biggest exchange.
So what is deceleration? The opposite of acceleration of course, but what does it mean in trading and why is it important? First let's look at some chart examples to see what acceleration and deceleration looks like. A market that is accelerating is moving faster and faster, making bigger price moves with every candle closed. It looks like this:
As soon as price broke out of the symmetrical triangle with momentum, price kept surging making bigger pip moves with every green candle. Price then decelerated and formed an 'expanding channel' which is a continuation pattern. After that pattern broke to the upside, price accelerated once more to the upside.
Deceleration is the exact opposite. With every candle that closes, price makes smaller and smaller price moves, until price keeps trading in a range or forms a chart pattern. Price often decelerates as it approaches key support and resistance areas. Why? Because traders are taking their profits at this level, slowing price down. When price has decelerated to the point where it no longer makes new highs or lows, price often ranges around with lots of inside bars. It looks like this:
Sometimes you will encounter perfect deceleration where price has come to a halt by 5-10 perfect smaller and smaller candles (real-bodies) after one another. Sometimes the deceleration is less clear and price just start printing lots of inside bars and vague price patterns such as the image above.
If you look closely you can see that, as price comes to a halt, it actually forms a double top. It isn't very clear on the daily chart above but deploying Multi-Time-Frame-Analyses (MTFA) and zooming in one time-frame lower (the 4 hour chart), the double top with MACD divergence can clearly be seen.
So deceleration can come in two ways:
Price decelerates by making consecutive smaller and smaller (real-body) candles until price comes to a halt and just ranges side ways. Or..
Price decelerates by forming some kind of chart pattern (usually also printing smaller and smaller candles when reaching the APEX of the pattern if applicable (such as a falling wedge).
Deceleration is a necessary phase for price to; either continue its current trajectory, or reverse in direction. As you will learn later in this masterclass, two of our strategies are continuation based and two are trend reversal based. For all of our four strategies it is mandatory that price enters a deceleration phase before breaking out with the trend or counter trend. Without deceleration prior to our entry, we do not trade.