Hi I will be planning my trades later . I have acquired a couple of handy tools to help me which is great to a point . I have got confused for the reasons why we select the strongest and weakest what we are trying to establish
I have a currency matrix which tells me which currencies are strong and weak in anytime frame .
I also have a currency strength indicator which is also a very useful tool .
I was taught on the course i did to do strength and weakness first which either the matrix or the csi are great for at a glance they tell you .
I’d say though that the matrix is good to goto after you have assessed the csi as then you can see compare the currencies you have chosen with all the other pairs and make sure you are trading with the general direction of the currency . which the matrix is great for .
The other thing the csi is good for is seeing when a currency is approaching a over sold or bought state too . (here comes the bit that is confusing me !) Often the strongest currency on the csi is approaching that area which at some point is going to reverse once it is over bought or over sold ! Is that the idea of strength and weakness to identify a pair where this reversal is likely ?
Or is it to just find the strongest bullish currency to trade long against the the weakest bearish currency ?
Also do we trade the strongest and the weakest as they are likely to have the biggest moves ?
This is the thing now I have the currency strength indicator i now have extra insight into what is going on which is why I have got confused .
Or is the idea just to assess all of the information above and in front of us and make a decision based on what we see in front of us ?
Eg if the strongest is in a nice uptrend but not overbought we trade trade it against the weakest if it is in a down trend but not over sold . and if either are approaching overbought and oversold we may have to manage them allot more and reversal might be likely where there will be a further opportunity to go the oppsosite direction !
I’m not familiar with the course that you signed up on, but here are a couple of points that might help you:
Not all trading strategies perform well in ALL market environment. For example, identifying strong and weak currencies and then trading them against each other may work for long-term investments and trending markets but could be of little help in the shorter time frames and low-volatility markets where intraday sentiments and directions change a lot.
Indicators (especially lagging indicators) are more like guides rather than definite signals of entry/exit. Unless your trading system specifies entry/exit rules?
I wouldn’t bet too much on big trends and reversals these days. Read up on the current trading environment and see if there’s an advantage in using your system. Some companies sell their strategies without telling their clients that it only works under specific trading conditions.
The way I use a FX multi currency strength meter is by first finding out if the top three currency pairs have a sufficient daily PIP range to effectively trade with, I then know that whatever trading I do on a particular day I stand to be in the best position to make some pips. Its no good going for a ‘favourite pair’ if they don’t have any momentum.
Secondly I then watch the top three pairs on a chart for trading signals and when I get one, I use the currency strength meter to confirm whether its false or real. If its a real signal I then trade it.
A multi currency strength meter, is just like any other indicator to show when currencies are up or down, but if you use one that also shows the daily pip range/momentum in the right direction then using a multi currency strength meter becomes a lot easier.
Currency pairs move up and down every minute of every trading day, but its the correlation between each of the currencies that determines the strength direction that any one currency pair is going and this is how the multi currency strength meter that I use, calculates the available daily pip range.
The correlation with another currency going in the opposite direction is what you need to trade, e.g. one thats going down and one thats going up, not from the extremes but from the middle. When each of the currency pairs reaches the tops/bottoms, then as you say they will reverse and the trend will end.
With this keep it simple trading strategy that I use, I do not look at overbought and oversold, what I do look for is pip ranges/momentum, real trading signals and currency strength directions, then I enter the trade for a short period, trade it then exit the trade and move onto the next real signal.
All currency directions will lose their momentum, therefore when another new real trading signal comes along, my exit strategy is to exit the last trade and jump on and ride the the new one until that one dies.
In addition to what’s already been said. Let me add, indicators, economic announcements and trader sentiment is all information to help you put together a picture. The picture will help you to decide how to plan your trades along with your money management plan. Rule of thumb in my opinion, the longer you intend to stay in a trade the less accurate your entry has to be, but the longer you intend to stay in the more info you need from the three above. For example momentum or strength are not as important for someone who is trading daily +, on the other hand very important to the trader who is trading 15 minute time frame.
So first thing you need to do is tell traders the time frame your trading. All currency legs have a trend, momentum, cycle and move between support and resistance. Depending on the time frame you are trading should depend on how you approach the different parts. But at the end of the day, indicators, announcements, sentiment are all tools you need to make a decision.
