That one I lost -20…again I had the direction right just not quite the right price, or too tight a stop which wasn’t placed above the resistance zone as it should have been which, to do so, meant I should have either increased my risk, reduced my lot size, or waited for a better entry price…I didn’t do any of that …tsk tsk.
Next trade, last night Asian/London session, again a short on EURJPY (even tho GBPJPY had the highest score but I shy away from that pair) which ended successfully for +40 (I targeted a prior support area) …so ending the week up overall.
Hey Sweet Pip, just wondering how long it takes you do this analysis, and how often you do it. Wondering if one of the many currency heatmaps online might work just as well as doing it manually in excel. Do you feel doing it manually provides better data than the heatmaps? I am not doubting, but just wondering if time could be saved, allowing more time to be allocated to other forms of analysis, or drinking beer.
I have read about pairing strong with weak before, but never really considered doing much about it, other than just eyeballing it on the charts. After reading your post though, I want to start using this in my trading more. I plan to try it out in one form or another. I’m glad you shared.
Hi,
Actually it doesn’t take very long at all. I made a little indicator that displays the relation of each currency in each pair to the SMA (above/below it) on one chart…it takes less than a minute for me to type it into the spreadsheet. I do it around the start of each session, which for my time zone is the Asian & London. The chart is on is a pair I don’t trade, so it’s not in the way on the charts I do watch.
I’ve looked at a few “heatmap” type indicators out there and they’re too complex for what I need. One day when I’m feeling it, I’ll take my indicator one step further and get it to do the excel part too, but for now it’s adequate.
Gotta go…funny enough there is a beer with my name on it waiting for me to get off my butt and go get it …it’s Saturday night after all…lol
That indicator looks pretty cool, especially the bad-ass comic font. Looks easier than I thought.
I can think of three alternative ways of doing this. I will think about them more later when I get around to doing this. But I’ll share the alternatives just to brainstorm, see what u think.
The current way, there are two possible inputs for each currency of a pair, I think you got 1 for down and 2 for up. I think a possible problem with that is it doesn’t reflect how strongly the pairs moved. For example, if the EUR/USD dropped 10 pips in one day, that’s not much of a drop. But if in the same day, the EUR/JPY shoots down 200 pips, that’s pretty big. In this case, the USD and the JPY both get the same score from these pairs, even though JPY moved against the EUR a lot further than the USD. More possible inputs might give more detailed data, but perhaps not. Can’t wrap my mind around it at the moment.
ALTERNATIVE 1) Instead of 2, use 6 possible inputs. I’ve been doing this in excel for a few months, but only with USD/EUR, USD/JPY, EUR/JPY.
1 = up a little
2 = up a medium amount
3 = up a lot
-1 = down a little
-2 = down a medium amount
-3 = down a lot
ALTERNATIVE 2) Input the change in pips. The problem here might be pips have different actual values for different pairs, so the data might get skewed a bit. But perhaps still more accurate than the original way.
ALTERNATIVE 3) Input the change in value (change in pips x pip value). I think this might give the most meaningful results. Would be a pain to do completely manually, but might not be to hard to make an indicator for it. Come to think of it, maybe this is exactly what a heatmap indicator does.
While those are good ideas, I think it depends on what one is trying to measure. Basically we are taught that “the trend is your friend”. So we need to measure which pairs are trending the best, and I don’t think Alts 2 & 3 do that. Just because a pair drops a significant number of pips, doesn’t mean it’s trending, or ranging. However, once you know which pairs to watch, I usually have 4, then use one of those alternatives to further narrow down the selection, or to better judge stops & targets.
Alt 1 is close to another “heat map” analysis which instead of the SMA uses the Close, High & Low, and ranks them as follows which could be adapted to give a few more strength/weakness inputs that try to measure trend strength. Instead of color, they’d be given number 1 to 5 and again you’d count the number of numbers, but whether it gives much more of an insight remains to be seen:
Dark Blue (5) means the pair is above prior bar’s high
Blue (4) means the pair is above prior bar’s close but below the high
Light Green (3) means the pair is flat.
Red (2) means the pair is below prior bar’s close but above the low
Dark Red (1) means the pair is below prior bar’s low
Some other heatmaps also include multi-time frame analysis too.
I’m testing the strong-weak trading using the index formula I posted previously.
I measure the last 3 days, to see which currency has been above the others in percent change, and which other currency has been below the others in percent change. Then I pair them both, and buy the stronger obviously selling the weaker.
It has been a complete success
I think I’m going to look for a way to back test this over at least 2 years of daily data and see if it can be profitable in the long term
I’m changing a little my technique. I check for the “heat map”, using the formula I posted before. I trade the weakest with the strongest, buying the strongest and selling the weakest. Right now it is buy on AUDJPY, I’m in (demo) with 117 pips profit in only 4 hours.
The change I did is, I let the trades open while the weak currency is on the bottom two AND the strong is on the top two of the list. Once one of them exits from that bottom/top two, then I close the trade. The reasoning is, if one of the currencies is not at the extreme of the range, then maybe the currency is going to change sides and that’s not good for this pair.
This way the system can have up to 4 pairs open at the same time, and I can divide set a 2.5 % risk per trade with a maximum compounded risk of 10%. Because I’m setting the stop and the profit using daily bars, the room for moves is pretty large.
187 pips on AUDJPY! and it is still the best! AUD is still the strongest and JPY the weakest. The top two are AUD and NZD, the bottom two are JPY and USD.
That is great!
Jun 7 - it is right now 250 pips hehehe and still the same, AUD strongest, JPY weakest.
I tried this idea today in demo. This morning just before 06:00 GMT, I went long the AUDJPY at 79.15 but got stopped out in the retrace around 10:30 GMT.
At the same time I also went long the NZDUSD at 0.7713. That was +40 pips in the money at one point but is now hovering around the break-even.
Some thoughts:
As an indicator, strong vs weak lags somewhat. By the time a suitable pair is apparent a move has already being going for several days. Who knows how much steam it has left?
I used FibPivot to indicate a suitable SL & TP, setting the SL at the support level under the price and the TP at the outermost resistance. But that was just in lieu of something better.
Timing. By opening the trades on predominantly APAC pairs during my morning in Europe, I’d already missed much of the available move today. Trades for APAC pairs need to be entered before the start of business there, between 21:00 GMT and midnight. Ideally, one would wait for a dip in the prices to enter in the expected direction but that requires watching the computer.
This morning (8 June) JPY shows as strongest against GBP as weakest.
So I’m shorting the GBP/JPY. Entered short at 122.62, TP 121.50, SL 122.85
The TP is ambitious so I’ll close manually if it’s not reached by the end of the day so the trade doesn’t run over the weekend.
[follow up]
I moved the SL to break-even once the trade was +20 pips.
At one point it was +50 pips but the retrace at 09:30 GMT just tagged my SL, so ended up break-even.
[thoughts]
the range of daily movement in these cases seems to be about 2 fibpivot levels. I need to consider that when setting the TP.
I need to find a way of entering the movement earlier (without staying up all night)
I don’t know if anyone will be interested on this. I saw this one a while back and I only use it on the daily to find out which currency is strong (going up) and weak (going down). I use the CCFp indicator
MT4 indicators are: cluser indicator CC and CCFp updated - MQL4 Code Base
Today I closed my trade on audjpy for a pretty good 284 pips (11.66% account gain) solely with strong-weak paring. Now, the strongest is NZD and weakest is still JPY, and the trade is currently gaining 84 pips.
I had various small loses while the strongest and weakest pair was defining, now that they are defined, I recovered all the loses and make profits, I’m now on 13.32%
Strongest is NZD weakest JPY, so I’m buying NZDJPY.
Previous one was long on NZDCHF, and extracted 52 pips just before NZDJPY replaced it. Right now NZDJPY is on profit with 11 pips.
Well done. I’ve got a few questions for you:
Strong vs Weak is giving you a pair to trade and a likely direction but how are you deciding the actual entry point? Or are you just entering blind at a certain time of day?
How are you determining your TP and SL levels?
Have you automated the system?
Currently, the pair I’m trading is NZDUSD buy, with NZD the strongest, and USD the weakest. EUR is in the middle of my scale, near CHF (surprise! hehehe, they are VERY correlated) and followed by GBP
Obviously, the top 2 are NZD and AUD (in that order, and surprise! they are correlated), and the bottom two are USD and CAD (surprise again, they are correlated hehehehe)
I had made a relevant indicator sometime ago, maybe it could be of use or perhaps I could slightly modify it for other needs. Basically you can choose an EMA (default is EMA 20) and then it will display an indicator line that ranges from +7 to -7. +7 means that the first currency of the pair (quote currency) is the strongest and the second currency (base currency) is the weakest. -7 means the opposite. Strength/weakness is determined based on which side of the EMA are the pairs of the currencies.
For example, if the indicator is at +7 for EURJPY, this means that all the EUR pairs are above the 20 EMA, and all JPY pairs are below the 20 EMA.
Currently it only uses the daily timeframe but this could be modified as well.
