As forex traders, it is not enough to forecast the correct direction of prices, you also need to know which pairs will offer the best forex signals.
While no approach is ever fool-proof, I have found this simple technique invaluable.
By simply comparing the forex pairs I am tracking relative to the Dollar Index (DXC) in terms of performance from a specific starting point, traders can quickly determine which forex pair is likely to give them the most bang for the buck.
Take the current situation:
While no approach is ever fool-proof, I have found this simple technique invaluable.
By simply comparing the forex pairs I am tracking relative to the Dollar Index (DXC) in terms of performance from a specific starting point, traders can quickly determine which forex pair is likely to give them the most bang for the buck.
Take the current situation:
- I am bullish on the Dollar Index (DXC)
- I believe the Dec 27th low marks the start of a sustained move higher
- Which FX pairs since Dec 27th are the best candidates to trade?
As you can see on the chart below:
- DXC is up 1.03% since the Dec 27th low
- USD/CHF is up over 2%
- EUR/USD is off over 1.5%
Thus, the best trades are in the pairs that are outperforming (long USD/CHF) and underperforming (short EUR/USD) the move in DXC. Pairs like USD/JPY and USD/CAD would not be good candidates to trade from the long side as they are underperforming by a very large degree.
Dollar Index vs. Major Forex Pairs
http://my.aspentrading.com/Nov_1/11_...3.14dxcIMA.png