And finally the Euro against our deadly duo:
Whats your basis for the strongest currency? Are you using USD as the base currency and than comparing the performance of say NZD & GBP v USD?
Bitters
Yes, to rank USD I will look at each of the 27 pairs that involves USD.
For example if we look at the USD pairs for this week my bias is:
USDJPY - Bullish
USDCAD - Strongly Bullish
USDCHF - Bullish
EURUSD - Strongly Bearish (equals Strongly Bullish for USD)
GBPUSD - Strongly Bearish (equals Strongly Bullish for USD)
AUDUSD - Neutral
NZDUSD - Bearish (equals Bullish for USD)
I count the different rankings for USD to get the following score:
Strongly Bullish: 3
Bullish: 3
Neutral: 1
Bearish: 0
Strongly Bearish: 0
After doing this for each of the 8 currencies and comparing the totals I have ranked USD as Strongly Bullish.
These rankings tell me whether there is overall selling or buying going on for a currency.
To explain it more conceptually, all these different bias for the USD are telling me that a lot of wealth is flowing into the dollar and very little is flowing out. At the same time the GBP ranking of Strongly Bearish is telling me that a lot of wealth is flowing out of the GBP and into other assets.
Given this knowledge, if GBPUSD goes up against the money flow and enters what I consider a strong Supply zone (where big sell orders might be present), I expect it to fall sharply.
But why would GBPUSD go up if the money flow is so strongly against it? Well it can be either because the flow has reversed; in which case I would lose. Or it might be because of profit taking, lack of liquidity for big players to enter, market makers nudging the price in order to hit big orders, short term news spike, etc. If this is true I will win.
By putting the strongest vs the weakest currency for a given time frame, I am trying to reduce the risk that the overall flow will abruptly reverse within that time frame.
Interesting bro, definitely interesting. What methodology to do you use to establish bias? Weekly candles - types (full body, doji, shooting star etc) or just direction, or do you use another method / concept?
Hi Bitters,
I am looking at price action on the H4 chart for setting my bias. It’s my favorite TF and can give a couple of good opportunities each week.
I tried to explain my reasoning in the chart below. Let me know if it makes sense.
You must have noticed the similarity of the charts. I split my risk equally between the EURAUD and EURUSD trades due to this obvious correlation on H4. If these zones had failed both trades would have been losses.
Using multiple pairs can have similar negative and positive effects as using leverage.
Hi Pipatron,
I had spent two weeks to make my own chart for currency strenth analysis. Well, I came to see that it was already invented. I’m not sure if I can post links or mention any brokers name here. They have charts for indice trading. I’m sending you the link via private message for the explanation of their calculation. Hope it helps.
Hi Metin, thanks for sharing. After staring at the formula for 5 minutes I (vaguely) understand what it means :p.
However, I am a price action trader and prefer to base my decisions on price, rather than derivatives of price.
Screenshot for context:
Cumulative Wins: 4
Cumulative Losses: 1
Open Positions: 1
Realized gains: +815 pips, +4.01%
Unrealized gains: +233 pips, +1.25%
The loss was on GBPAUD. Would have been a win if I had placed my stop behind the second zone according to plan. Hopefully the lesson has been learnt.
Bias for upcoming week.
I’m not looking at CHF for now because it’s just a less volatile cousin of EUR.
I’m coming up with my own currency power ranking and for JPY it’s showing me it’s reversing to becoming bearish which is not the same what price action charts are displaying so will be interesting how upcoming week will develop for JPY pairs.
Just started playing with currency strength ranking last week so still lots to test.
The only medium good pair my ranking system displays for upcoming week - based on last week’s performance, is to go long on USD/CHF.
Hi Jimbo,
JPY is a bit of a wildcard right now as it is reacting very strongly to news and rumors. There is a BOJ meeting on Wednesday which I think will determine whether the Yen strength continues or fails. I will not be taking any JPY trades if the current retracements start to look like reversals.
If you don’t mind sharing, what kind of approach are you taking for your rankings? I guess you’re looking at a different TF, not H4.
