News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
EUR/USD
Mixed
Oil - US Crude
Mixed
Wall Street
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Gold
Bearish
GBP/USD
Mixed
USD/JPY
Mixed
More View more
Real Time News
  • USD awakens, placing GBP/USD on the backfoot, while EUR/GBP cracks 0.90. Get your #currencies update from @JMcQueenFX here: https://t.co/fndMQJLul8 https://t.co/elz5gNAKrB
  • What are some factors impacting Euro’s forecast this quarter? Get your free forecast here: https://t.co/kpBYVz31Bd https://t.co/7EzMPg9Kqg
  • Emotions are often a key driving force behind #FOMO. If left unchecked, they can lead traders to neglect trading plans and exceed comfortable levels of risk. Read on and get your emotions in check here:https://t.co/eILWbFgHRE https://t.co/DjMdgL5x19
  • Technical indicators are chart analysis tools that can help traders better understand and act on price movement. Learn more about the importance of technical analysis here: https://t.co/NpC1D8y4Aa https://t.co/6sqqRfTri2
  • The British Pound, Australian Dollar and US Dollar may all experienced heightened periods of volatility as geopolitical risks in North America, Asia and Europe rattle global financial markets. Get your $GBPUSD market update from @ZabelinDimitri here:https://t.co/0EFToM5Y8I https://t.co/5gsZQfX6aG
  • The New Zealand Dollar may continue to outperform the haven-associated US Dollar as price breaks above key long-term resistance. Get your $NZDUSD market update from @DanielGMoss here:https://t.co/D1DxtDkJXd https://t.co/DwkK9F9FCJ
  • #Gold prices declined following bearish technical cues, but a key zone of support was reinforced over the past 48 hours. #XAUUSD volatility risk is elevated ahead of the #USElection - https://www.dailyfx.com/forex/technical/article/fx_technical_weekly/2020/10/30/Gold-Technical-Forecast-Election-Raises-Volatility-Risk-But-Support-Holds.html?CHID=9&QPID=917702&utm_source=Twitter&utm_medium=Dubrovsky&utm_campaign=twr https://t.co/5hgGEojvIE
  • What is the US Dollar outlook based on retail positioning ahead of the November 3rd presidential election? EUR/USD may fall as AUD/USD rises. Which way could USD/CAD capitulate? Find out from @ddubrovskyFX here:https://t.co/BVoIcR9anM https://t.co/Frmn9y6yKJ
  • US #COVID19 cases hit a record for a second consecutive day -BBG
  • The Indian Rupee may weaken following a breakout higher in USD/INR. Despite rising global stock market volatility, the Nifty 50 has been holding its ground. Could it capitulate lower? Find out from @ddubrovskyFX here:https://t.co/BNJ5uTKz1A https://t.co/VkvmiwWAtz
How to Create a "Trading Edge":  Know the Strong and the Weak Currencies

How to Create a "Trading Edge": Know the Strong and the Weak Currencies

2011-06-14 02:38:00
Richard Krivo, Trading Instructor
Share:

In our live Trading Webinars we often refer to finding out which currencies are the strongest and which are the weakest. By making that determination we can pair the currencies so that we have a strong versus a weak or a weak versus a strong. By doing that we are creating a “trading edge” for ourselves. If we trade a currency pair in which both currencies are fairly equal in strength, we give up the edge because either currency can “take control” since they are of equal strength.

By matching up a strong with a weak, however, we can have a bit more confidence in knowing the direction of the likely move. Then, if we match the direction of that potential move with the direction of the trend on the Daily chart, we have a clear trading edge.

For example, currently the USDCHF pair is in a downtrend on the Daily chart. Based on a strong/weak analysis we see that the USD is weak and the CHF is strong. So selling that pair in the direction of the Daily trend is a higher probability trade.

How to do it?

Briefly, here is how I go about doing a strong/weak analysis…

I use a 4 hour chart with a 200 SMA (Simple moving average) on it. On a sheet of paper, a legal pad or an Excel spreadsheet, I list the currencies (not the pairs but the currencies themselves) in a vertical column. For example, EUR, USD, CHF, etc.

Now, let’s say the pair in question on the 4 hour chart is the EURUSD. If it is trading above the 200 SMA that means that the EUR is stronger than the USD at that point in time. I make a note of that next to the EUR and the USD in the vertical column…EUR gets an up arrow and the USD gets a down arrow. Then I go to the next currency and go through the same process. (All in all I bring up about 25 pairs on the charts each day before the open of the New York session and it takes less than 15 minutes.)

When I am done with the above process, I tally all the “up arrows ” and “down arrows” for the EUR against the other currencies and then I can tell where the EUR ranks strength-wise relative to each of them. For example, if the EUR has 5 up arrows and 2 down arrows and the JPY has 3 up arrows and 4 down arrows, that means that the EUR, overall, is stronger than the JPY. (It doesn’t get much more simple than that!) When I have all the currencies in which I am interested evaluated in this way, I then have an overview of how they all relate to each other based on strength/weakness.

Next, I match the strongest with the weakest and go to the charts and look for a technical reason, such as a break of support or resistance, to enter the trade in the direction of the trend. A pair that has a strong currency paired against a weak currency would be a candidate for a buy in a Daily uptrend. On the other hand, a weak paired against a strong would be a candidate for a sell in a Daily downtrend.

As far as the pairs that I personally look at, I run this analysis on all combinations of the following currencies: USD, EUR, GBP, JPY, AUD, NZD, CHF and CAD.

The process is very basic, straightforward and quite boring…but it works.

As a side benefit, while I am going through the process of checking the 4 hour chart on each pair, I really get a sense for what is going on in the market at the time. And that information serves me well as the trading day progresses.

Frequently Asked Questions (FAQS)

Is this the only trading strategy?

No, there are countless other trading strategies. You must find a trading strategy that suites your trading style. However, most successful trading strategies are similar in how they manage risk and leverage. Managing risk, using positive risk-reward ratios, and limiting leverage, have been shown to increase a traders success.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES