My realization

Beginner Questions
1

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.

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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…

2

They’ve been advising this for years on here 301 Moved Permanently & on its predecessor, & reiterating it again on here recently 301 Moved Permanently

This guy is also advocating a similar style 301 Moved Permanently It’s been discussed & cogitated for a long while around different locations & venues.

The approach is both valid & logical, but because it’s so simple in its identification & application it unsurprisingly gets overlooked by the masses, which is no bad thing!

3

Indeed. People don’t want to know or listen. I made a thread a while ago on here about index charts and there were hundreds of views. 0 replies. Bet you this thread won’t be very popular lol

4

Hey Epidot.

Well, I surely cannot disagree with you. In fact, this is exactly the way I approach my trading, fundamentally speaking.
–Strong vs the Weak.
–Getting in with the flow.
–With the [B]absence[/B] of indicators.
–[B]Not[/B] looking for setups.
–Concentration on market sentiment.

So, needless to say, I’m with you.
But, let me tell you some of the struggles we need to understand. (And I’m sure your aware of them) (I just want to bring them to light)

Strong/Weak is very relative. You need to put it into the proper perspective. And I guess that all depends on the time period you plan on keeping the trades open. Or on your plans for taking profit.
For as much as I keep track of all 8 of them, I’ve found that [B]any one currency[/B] can be strong at any point in time. Across the board. Likewise with being weak. And who knows what the real reasons are. But, we just know that money comes into the market pushing up, or down a currency, for a purpose. And it is a fact (because I see it over and over again) that money tends to be pushed on a currency across the board.
They just don’t keep with one or two particular pairs. Like your EUR example. If money is coming into the market, it is coming in against [B]all[/B] of the other currencies also. This is an edge believe it or not. To know that fact that when the big players move their money, they don’t have in mind just one currency pair to move higher. They have in mind moving a complete currency. And the same with the Central Banks’ involvements. Not one of them is thinking ‘oh, we want xxx/xxx to go higher/lower’. They are concerned with the entire currency. So, my point there is it’s good to know that the money has in mind the currency as a whole.
But, what’s more important, is figuring out how long money wants to keep a currency strong, likewise weak.
Putting all that into perspective, I believe, is very very important. The shorter the time period, the tougher it is to determine how long it will last. We all know that trends tend to be more predictable the further out you go. All you have to do is look at some far out time frames, and you will see the lines are longer (trends). So, hopefully we are trading within the confines of the proper time frame trend.

And something else I find is very, very exciting is how they all relate to one another. That knowledge is having an edge also. Probably the biggest relationship that mostly everyone knows is how the market operates in the risk on/ risk off scenario. We hear it from the analysts when money is running toward safe havens. Sure, we will see the JPY, CHF, even the USD get stronger. (that’s the risk off feeling) And risk on tends to make the Commodity Currencies stronger (AUD,NZD,CAD), and even the EUR can get some of that. But there are soooo many other different particular relationships going on in the market.
The EUR and CHF are together. The AUD and NZD also. The USD and CAD are (big trading partners).
I can go on and on about that, but, the point there is, the currencies can operate as individuals (across the board movements), but also as partners. Believe me, when you keep track of their daily totals for so long, you will see similarities. Money has a purpose in mind. It surely won’t be tunnel vision to a particular currency pair, but mostly with a broader objective in mind. Money is greedy. The big players are looking for to make as much as they can. And that’s by spreading out their wealth.

OK Epidot…sorry for going on like that. But, I do believe we are on the same page. And as you have articulated, we should be looking at what’s going on in the market. The bigger picture. All within the confines of understanding the proper time frame trend analysis’.

I’m with you buddy.

Mike

5

Hey Mike,

Thanks for the post and glad you agree. I know exactly what you mean. I use a premium recent strength indicator graph from FXCM trading Station which shows me at a glance all 8 currencies on a line chart over any Time frame and days I desire. This helps me to see which currencies correlate and which are strong/weak. This is relative also but I start from 3 days back for 1hr trading. I think it’s long enough.

As you said AUD and NZD correlate well with CAD a little behind. Others also. However I much prefer just to look directly at the index charts. These index charts also have support and resistance price reacts to. Those who are not looking at these index charts will not see this.

You are right about the strength being relative. For me I trade the 1 hr chart so I would call a strong currency one that has been moving nicely up for 2 days at least.

I also find that one currency is either a lot stronger or a lot weaker than all the others at any given time. And yes figuring out how long for is the key.

As my example with EUR/JPY shows, there is no real support or fib and here lies the difficulty of trading Strong vs weak. You really know when you have found a great pair when you see no support, resistance or fibs haha. The stronger the trend the less pull backs, the less entry setups you will see. This makes it tricky to know when to enter and this is the difficulty of trading strong vs weak. But I believe it’s the best way.

I think the big issue a lot of people have is this. They see a trend and jump to the conclusion it must be ending as its moved far enough. So they start looking for tops and bottoms. Big mistake… This is what tends to make retail traders trade opposite to the pro’s. And this is why trading strong vs weak is so good. Doing so makes it near impossible to trade against the pro’s. why? Because if i’m buying the strongest currency against the weakest across 8 currencies, you can bet that the pro’s are doing the same regardless of what the pair charts tell us.

The index charts seem to be a real gem in which most people just don’t care about. Shame

6

To Epidot , this makes allot of sense to me, i am one that does match weak/strong and the outcome is fantastic. It took me a while to catch on , but when i got my A** kicked enough time i woke up and smell the coffee . Great advice and carry on.:42::42:

7

Hey Epidot.

I make my own currency index charts. Have been for 3 yrs now (2 1/2 to be accurate). I work on the daily time frames. So, at the end of each and every trading day I record each of the 28 different pairs. I group them. So, I can tell you what each currency has done against any other currency. Well, if you can imagine, if I am always keeping track, then I can tell you just about anything in particular that has happened. And make any correlations also. For example, how the USD did against the Comms as a whole on any day. How CAD performs against their buddies. How the JPY, AUD, NZD (the Asian group) relate to the others. It’s endless the things that I am able to study. And I will continue to do this, cause if I want to go back and study any kind of ideas that I can come up with, I have the data. On paper. (And excel).
So, yes, I truly believe in the indexes. I just have collected all the data myself. I have formulated and fashioned them as individuals, and teams. All on the daily movements. Plus I think in that time frame, it gives a more accurate picture of the flow. Asia has their turn, then London, then the US. And I also think the weekly time period is important. Cause if there’s any starting point (which technically speaking there’s not) it would be the Open to Close.

Some of my thoughts.

Mike