Currency Index charts are rarely talked about in threads or guru videos. I really wonder why. If you have not used them then let me tell you that you are making a big mistake.
Since I started using them I have made such great progress. I am really able to predict a movement before it happens with alot more accuracy than just looking at a single pair.
Why does this work? Well think about it. If you are trading the EURGBP pair for example, you are only analyzing one pair of 13 which those two currencies are involved in. That is of course if we are just focusing on the 8 major currencies.
So what does this mean? If the EURGBP chart shows a trend line , how much confidence can you have in that trend line when it represents only one chart out of 13 in which those two currencies reside? not a lot i’m afraid.
The index charts give an overall representation of each currencies strength against all other currencies. Thus if you draw a trend line or sup/res line on a currency index chart, it will hold much more weight!
Let me explain why this is so great. Lets assume the EURGBP chart has just broken trend.
Now what do the guru’s teach? They tell you that break out pull backs mean you want to buy this pull back for a long entry. Well how many of you have done this only to watch price fall back into the trend and go on tilt?
Before you tell me “no they teach only breakout pull back when the breakout is clean with a long bar. This breakout is weak”
That may or may not be true but it’s lousy information either way. Just change the time frame and what appeared to be a weak breakout on a 1 hr chart might be a clean breakout on a 4 hr chart! you see what I mean? Don’t use this alone to determine what is a valid breakout. The index charts help do this.
Let us analysis the index charts to tell us what to do next.
Have either of these index charts broken trend? no so why on earth would we want to buy the pull back? Why would we want to buy the Euro when the Euro has just clearly bounced of the trend line on the index ready for another down move? And the same time the GBP has reached support ready for another move up. Think about this it’s so important…
On a currency pair chart we all no not to buy into resistance or sell into support. But here is the thing… Are you buying into resistance or selling into support on the index charts? How do you know if you didn’t look?
The Guru’s are bad plain an simple. I can say this because they do not teach this and I believe the index charts are the key to success.
So what happens next on the EUR GBP?
That’s right it fell back into the trend. The thing is, the currency charts told us this was likely. We did not place a long trade on the pull back. Infact I placed a short trade knowing exactly where price would go. I t was high probabilty that price would reach the lower support level. Here is my trade
So lets check the index charts now to see why the price fell to this level in the next post. Can only have 5 pics per post.
