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How To Find FX Trades with a Larger View of the Global Economy

How To Find FX Trades with a Larger View of the Global Economy

2014-09-17 03:00:00
Tyler Yell, CMT, Currency Strategist

Talking Points:

-Building the large view

-Finding the low-hanging fruit

-Know when you’re view is wrong

“The Golden Rule of Habit Change: You can't extinguish a bad habit, you can only change it.”

― Charles Duhigg, The Power of Habit: Why We Do What We Do in Life and Business

“We need to stop, and admit it: we have a prediction problem. We love to predict things—and we aren’t very good at it.”

― Nate Silver, The Signal and the Noise: Why So Many Predictions Fail-but Some Don't

Every Monday, I host a popular webinar on DailyFX Plus with one goal; provide a larger view of the market. The purpose of this webinar is to help traders get into the mindset of seeing the big picture in terms of market fundamentals, set-ups according to the charts, and market sentiment. With this large view, you will still place losing trades but you’ll be able to keep a cool head so that when a shake-up happens, you’re not anticipating a major reversal, which is rare but looking at a strong risk: reward within you’re overall market view.

See Also: One Minute Pre-Trade Checklist Any Trader Can Use

Building the Large View

Building the large view is all about finding one or two currencies that leads the pack and one or two laggards. The purpose of building the large view is so that you can always have a reference point when markets begin moving and can look to put a trade that is building momentum. Now, the risk in buying the strongest or selling the weakest is that you buy at the top or sell at the bottom but as a major trend reversal is rare relatively speaking and stops allow you to focus on momentum.

If you prefer to trade an individual currency as opposed to a pair, you can do that with the Mirror Trader Platform.

(If you wish to place a broad based currency trade (such as USD buy or sell vs. the majors), you can do so by placing a USD basket trade through Mirror. Register here for a free Mirror practice account.)

Learn Forex: A Strong Trend is hard to Stop

How To Find FX Trades with a Larger View of the Global Economy

Presented by FXCM’s Marketscope Charts

Finding the low-hanging fruit

Trading should not be made any harder than it has to be. To become a trader who turns a profit consistently often comes after you have battled internal demons and found a form of analysis that works well for you after dismissing the search for the Holy Grail. The way to make trading a less difficult discipline, it’s best to find match a weak currency and sell those vs. a stronger currency that you can buy. This combination is often a result of a clear fundamental, technical, & sentiment trend for both strong and weak currencies.

To find a weaker currency to sell against a strong currency, you can look at multiple crosses to see if the currency is getting beat across the board. For example, over the last few weeks, the JPY has been beat across the board along with the EUR. Similarly to find the strongest currency, you can look across the board to find a currency that is beating its components. Currently, this example is the US Dollar as the greenback is gaining vs. the other majors currencies like the AUD, JPY, EUR, GBP & CHF.

Learn Forex: USD Has Become the Leader of the Pack

How To Find FX Trades with a Larger View of the Global Economy

Presented by FXCM’s Marketscope Charts

Know when you’re view is wrong

So far, we’ve discussed taking the large view so that you have a default set of currencies to look to buy or look to sell when the market starts moving. These default choices are based on what is clearly weak and what is clearly strong and not trying to buck the trend but planning on the trend to continue. Because we’re trading and the future is uncertain, it’s important that you have an exit plan or a pre-determined point where a strong currency becomes weak or a weak currency becomes strong and it’s time to abandon your current lineup and readjust based on the current market internals.

My approach is to focus on a few key levels of support for a strong currency to hold on a few pairs or resistance on weak pairs. Should those levels break, you can easily see that the framework that you’re trading from is changing. An easily adjustable way to identify a shift is with weekly pivots.

See Also: A Simple Guide to Trading With Pivots in a Directional Market

Happy Trading!

---Written by Tyler Yell, Trading Instructor

To contact Tyler, email tyell@dailyfx.com

To be added to Tyler's e-mail distribution list, please click here

Tyler is available on Twitter @ForexYell

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