By: Mark Denson (AccuStrength Pro 4)
9th April 2013
______________________________
In order to trade the Forex market correctly, determining the strength of an individual currency is vital.
If you think in terms of strengths and weakness, and apply it to an individual currency, you are thinking like a bank trader. When foreign exchange trading opened the door for the retail investor less than ten years ago, people began jumping into the high leveraged community automatically assuming that technical analysis from stocks or commodities would convert as well. On the surface you would think so.
Traders from other markets look at one instrument fixed to the US dollar. Forex charts look at two completely different, always changing entities.
Throughout the day all currencies are changing in value as perception, news, politics, and economics plays out in their respective countries. One currency may be going up in value due to a piece of great economic news, while another is losing its value from a political scandal indicating future uncertainty.
This interplay is what we are seeing when looking at a forex chart. Using only one chart tells us only part of the story.
Forex charts track the changes made by two individual currencies. Only by observing interaction among many currencies can we determine how a particular currency will most likely perform in the future.
For example:
A EURUSD chart shows only the value of the US dollar against the Euro. If the line goes up, is the euro really gaining strength overall ? Or is it reflecting weakness of the US dollar? We don't know until we can see several other charts containing the EURO and the US dollar and note their weakness or strength in that pair combination.
The value of world currencies are always changing. One interesting concept that is known by all world market traders, is that each currency will go through a period of trending. This means it will continue to become stronger or weaker until something happens to change things. Being able to electronically measure and weigh each currency as it interacts with others is the secret to trading forex.
My trading decision should have 3 parts to it
.
1.. Pick a pair of currencies that are moving toward strength or weakness using the currency strength Chart. Watch the lines form for at least a half hour prior to beginning.
2.. Find an entry place using the simple moving average crossing plus six-ten pips.
3.. Determine your exit by using the assistance of the moving average and price line.
My job, as a day trader is not to predict the direction of world currencies for days or weeks. We shouldn't care. My trading decisions should only be based on what is most likely to happen to a particular spread for the amount of time we happen to be involved in the trade.
