We are all taught in the beginning what types of setups to trade. The pull back to support trend continuation… the reversal etc.
So what do we all do ? We look at charts seeking these types of trade setups. This is a mistake. Let me show you why.
The EUR/USD image is what we tend to look for. But lets actually understand what the setup is showing us.
The EUR is stronger than the USD however the USD is strong enough to pull back the EUR to support and the 50 fib level. So the USD cannot be that weak right?
Now lets check the EUR/JPY. This looks like a bad setup right? no support no fib how do we trade this?
Well lets think about this. The JPY did not manage to pull back the EUR to support or fib. So you tell me which currency is weaker the USD or JPY? Which out of these two do we want to trade?
What do all pairs show ? The strength differential between two currencies. So why on earth would we want to trade the EUR/USD instead of the EUR/JPY?
It’s this simple. We want to trade strong vs weak. That’s it.
A trading setup like in the above EUR/USD picture is not what we want to trade. It shows we do not have a strong vs weak pair. Granted yes the EUR is still stronger than the USD. But tell me why you would want to trade this setup when the EUR is much stronger than the JPY than it is the USD?
So what am I proposing. People need to stop setups that they have been told “look good” and they need to start understanding what is actually going on. You need to trade strong vs weak for the best edge. It’s that simple.
I am a day trader and I check the 8 currency index charts each day to see which is strong and which is weak. This gives me the pair to trade.
Living in the UK the new daily range starts moving at about 5-7am and usually the ADR has been reached by 11am. This tells me that the days move will likely occur between this time. So I simply enter when the price action signals the move and set my TP to 10-15% less than the ADR.
It’s really that simple
I believe that no strategy people come up with can trump this method.
Are you trading strong vs weak? Are you trading a step by step tick box strategy that really just leads you down the garden path? Perhaps you really have no edge but you got the placebo effect… Have a good think about this.
Trading charts are not magically constructed. You take one index chart and combine it with another index chart. That is what you see! It is obvious to see that the ideal chart will be one which has a strong vs weak index. Why would you trade any other way?
People that just trade the EUR/USD get caught out by this. What if both the EUR and USD are ranging or both strong or weak? Then it’s a bad pair to trade. People that don’t take this into account are bound to lose.
Now i’m not saying that I win every trade or that it’s easy. But the method is simple to follow. And at the end of the day taking such trades will be higher probability. Stop trying to pick tops and bottoms. Try it…