Developing a trading strategy or system is typically a process of fits and starts. The deeper you investigate an idea, the more challenges you find it faces — especially when the idea looks really good from the outset.

Things are never as simple in real trading as they are on paper, and the more rigorously you test something, the more apparent its limitations usually become. Progress can be slow, but the process itself is often the ultimate reward because through testing you often stumble upon new ideas or explore concepts you hadn’t even thought of before.

Trading intraday FX swings (Currency Trader, January 2006) explores a simple price-based intraday trading approach. The idea was to determine whether price moves of a certain size — in this case, a .0010 drop from the low of one bar to the next in the Australian dollar/U.S. dollar rate — tend to be followed by regularly recurring price behavior.

Now we’ll take a look at the other side of the coin — whether .0010 increases from the high of one 10-minute bar to the next are followed by recognizable price patterns — and whether this information can be translated into a practical trading plan.