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Individual Currencies & Relative Strength

  • #81
  • Oct 6, 2008 5:48pm Oct 6, 2008 5:48pm
Quoting Pipsqueak4x
Hello BB and FXsurfer,



Example: GBPUSD candles moving up STRONG and USDCHF candles moving UP STRONG = GBPCHF moving up STRONG (Actually this means that the USD is getting weak against the GBP and at the same time the USD is getting strong against the CHF) Interpret: Candles on BOTH GBPUSD and USDCHF are moving up together strong = STRONG move up on GBPCHF (but, at almost 1.7:1 ratio!! GBPJPY doing this is almost a 2:1 ratio!)

The 9 Strength-Weakness Correlation positions:

1. GBP/USD Up and USD/CHF Up - Cross will move UP STRONG (Primary trade objective moves)
2. GBP/USD Down and USD/CHF Down - Cross will move DOWN STRONG (Primary trade objective moves)

3. GBP/USD Up and USD/CHF Down equally - Cross will REMAIN FLAT (Don’t trade these moves)
4. GBP/USD Down and USD/CHF Up equally - Cross will REMAIN FLAT (Don’t trade these moves)


5. GBP/USD Up and USD/CHF FLAT - Cross will move UP MODERATELY (Can bring decent profits)
6. GBP/USD FLAT and USD/CHF Up - Cross will move UP MODERATELY (Can bring decent profits)

7. GBP/USD Down and USD/CHF FLAT - Cross will move DOWN MODERATELY (Can bring decent profits)
8. GBP/USD FLAT and USD/CHF Down - Cross will move DOWN MODERATELY (Can bring decent profits)

9. GBP/USD FLAT and USD/CHF FLAT - Cross will remain FLAT (Market is undecided – leave alone)


Correlation trading like this is actually a type of Triangular Arbitrage, where we are exploiting the ineffieciencies of the market (completely legal and respectable) and knowing these 9 possibilities brings about a greater awareness of looking at two currencies and getting enough valid information to trade a third / cross currency.



Most people think that the crosses move on their own accord, with separate support and resistance, etc. like the underlying currencies. The crosses hit S and R when the underlying currencies do, not on their own! But it truly looks like the crosses are moving on their own accord a chart! This is the biggest understanding about crosses. If you sell this info, give me a nickle, OK?



I hope this articulates a few points of your discussion in this thread.



Keep your powder dry, Cheers!



pipsqueak4x
Very Helpful and Correct.........BUT !!!!!!!

The examples you gave are correct as stated for the 9 SW correlations possible, but there is a few more possible correlations that you should have stated. You based those on the assumption that the direction of the move (example 1 the gbp/usd (UP) and the usd/chf (UP), that move UP is caused by the usd) if the move UP is caused by the usd your are correct, but what if the usd is neutral and the move UP for gbp/usd is being caused by GBP and the move UP for Usd/chf is caused by the CHF ? Your cross trade will not be a strong move in any direction and more then likely will be sideways , the exact direction will be caused by which part either GBP or CHF has the strongest momentium at that time. As long as the usd stays neutral there is a 50-50 chance that the cross GBP/CHF will even go down .

So bottom line is, be careful taking any trades for the crosses if you are just looking at the direction of the move of the major currencies, unless you know which part of the major currencies is causing the directional move.

Good trading....
  • #82
  • Oct 6, 2008 7:06pm Oct 6, 2008 7:06pm
I just updated today's chart on my site, and thought I'd reproduce it here. It's a pretty simple idea, but here's what I look at:

Attached Image


I also use a similar approach with news releases to try to get a read of how fundamental pressures are building in the market, but that's a bit more involved with regard to calculation. I'll be making that available on the site soon too.

Being able to get the FF calendar data into Excel helps a lot though. Thanks Merlin!
  • #83
  • Oct 7, 2008 7:14am Oct 7, 2008 7:14am
Quoting Forexharry
Very Helpful and Correct.........BUT !!!!!!!

The examples you gave are correct as stated for the 9 SW correlations possible, but there is a few more possible correlations that you should have stated. You based those on the assumption that the direction of the move (example 1 the gbp/usd (UP) and the usd/chf (UP), that move UP is caused by the usd) if the move UP is caused by the usd your are correct, but what if the usd is neutral and the move UP for gbp/usd is being caused by GBP and the move UP for Usd/chf is caused by the CHF ? Your cross trade will not be a strong move in any direction and more then likely will be sideways , the exact direction will be caused by which part either GBP or CHF has the strongest momentium at that time. As long as the usd stays neutral there is a 50-50 chance that the cross GBP/CHF will even go down .

So bottom line is, be careful taking any trades for the crosses if you are just looking at the direction of the move of the major currencies, unless you know which part of the major currencies is causing the directional move.

Good trading....
ForexHarry,

Thanks for stating this. Your input is valuable and appreciated. You are correct. My statements are primarily geared towards analysing the underlying pairs to identify strength and weakness in the Majors in order to make well directed trade in the crosses. But, the seasoned trader can also trade the Major and not bother with the cross when it is identified. (There are actually a few more movement combinations that can be extrapolated when trading crosses as well, like: Strong Up vs. Moderate Up or Weak Down vs Moderate Down, etc.).

Let's look at this closer for a bit more clarity (it can be bit confusing to newer traders trying to understand strength and weakness and the placement of the Base currency).

Using the above GBP and CHF correlation chart as an example, when the chart candles are moving in the same direction together at the same time (due to the placement of the BASE currency being first 3 letters in the combination), what is actually happening is that the USD getting weak on one pair and getting strong on another pair! This is the best time to trade the Cross currency. But first, let's look closer at this for the benefit of newer traders:

1. The BASE currency is the FIRST 3 letters in the combination (ex.: in the GBPUSD, the GBP (first 3 letters) is the BASE currency and the USD is the Variable currency( second three letters). Therefore the GBP will always be equal to 1 (base value) in value and won't vary.

2. The Variable currency is the SECOND 3 letters in the combination (ex.: in the GBPUSD, the USD will always have a changing (variable) value.

So, 1 GBP equals an always changing (variable) amount of USD dollars.

In interpreting strength and weakness correlation like our example (GBPUSD, USDCHF and GBPCHF), since the USD is the Base Currency against the CHF, but the GBP is the Base currency against the USD, it APPEARS (because of the candles from our brokers moving in the same direction) that the USD is are getting strong/weaker at the same time, since they are moving UP or DOWN in tandem. But what is actually happening because of the switched BASE pairings, that the GBP is getting STRONG vs. the USD and at the at the same time the USD is getting WEAK against the CHF. This means that the CROSS will move almost 2:1 compared to the individual moves of either of the underlying pairs. It takes a little bit of practice to get this. In a perfect world the USD would always be either the BASE or Variable currency on all broker's platforms and it would be easy to see this.

To complicate matters a little bit more, stay with me, the above correlation table has to be reconfigured in order to work with two currency pairs in which the USD is the BASE (or Variable) currency against the cross! Take the EURAUD, for example, : EURUSD and AUDUSD. The USD is the Variable on both! This means that the correlation chart needs to be reconfigured to make sense (EURUSD UP strong and AUDUSD DOWN strong equals STRONG MOVE in EURAUD!!)

I point this out not to confuse anybody, but if you are going to play in the currency markets it is fundamental to understand the relationship of the currency displays if you want your trading to go to a higher level. You can't just trust a few indicators and think you are a currency trader.

Hope this helps out a bit more.

Thanks ForexHarry for expanding this discussion.

Cheers!
  • #84
  • Oct 7, 2008 7:37am Oct 7, 2008 7:37am
Capitalist 88,

Nice set of correlations with oil. It's amazing how, when our eyes are opened to correlation dynamics, we can utilise a number of approaches to finding strength and weakness and profit from this awareness.

An example now is how the Japanese Yen is tightly correlated to the US stock market (during US trading hours). They hold a lot of positions in US companies and a lot of US treasuries, debt, etc. Watch the USDJPY during these hours and look at DOW movement (If I use MT4, I use Alpari Russia for DOW, Oil and Gold) and you can see the correlation, esp. if you want to trade the Yen.

You can follow the Dow Futures rates of Asia and Europe as well to look at the direction for the US open and there is a high correlation there.

Oil has been a a big player the past year in correlation values (Canada is a net exporter of oil and a high price is good for them, but Japan is an importer of 98% or so of their oil, therefore the CADJPY follows oil price dynamics.

Keep on keeping on,

pipsqueak4x - ENFJ
  • #85
  • Oct 7, 2008 3:59pm Oct 7, 2008 3:59pm
hey lenoxer..... this is the thread that is similar in thinkin to basket tradin..... several of these guys seem to have a better grasp of pair relationships than me and have whittled the pairs down in the manner we need to follow..... i'll have to rewrite my ea to match their thoughts.......



//------part of my post from other thread

create arrays to better see the flow of money..... then you can apply standard indicators to those arrays to have signals .... such as moving averages, stoch, macd and so on..... and it seems wiser to trade in the direction of the money but only those pairs that are associated with it..... ie, don't buy the eurcad just because your usd pairs say to go long.......h

//--------------------------------------------

so,,, roughly as example what i've been doing is adding ,

nzdjpy, usdjpy, eurjpy, chfjpy, gbpjpy, audjpy and placing that into an array and applying iRSIOnArray(,,,); function.... also other indicators in similar manner....

when the rsi , ma's , cci and such move up i'd buy'em all.... when they moved down i'd sell'em all..... or basket trading the jpy pairs......similar to trading etf's and ishares.......

and doing the same for usd , chf , gbp pairs.....

//----------------------

reading what some of the guys have written here, i now believe the ea needs to be rewritten to match their thoughts......h
to trade and code, keep both simple... no call to impress....h
  • #86
  • Oct 8, 2008 3:14am Oct 8, 2008 3:14am
After a few days of study, I finally see it. It is the answer I have been looking for all this time. The indicator is perfect. Thanks to all who contributed here.

I was trying to upload my chart but it seems that forex factory dont allow upload of image. The image have to be hosted somewhere to be posted here.

Anyway here is my view of current pairs now based on the study of currencies relative strength.

GBPUSD and EURUSD
At the moment entering correction mode. It tends to go up rather than down but this is not the real move. This movement upward is just a correction but it Is the only way to trade. Follow the strength

USDCHF
Direct opposite of GBPUSD but GBP is showing more strength. Most probably GU will be moving much more than UCHF or EU.

Currently holding GU long from 1.7380 but knowing that this is only a correction, maybe it can make it up to 1.7850. Hopefully.

Next pair to watch is USDCAD but looking at it, it may be a correction. Let just wait and see
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  • #87
  • Edited 3:02pm Oct 8, 2008 3:31am | Edited 3:02pm
Quoting Pipsqueak4x
(it can be bit confusing to newer traders trying to understand strength and weakness and the placement of the Base currency).
Yikes!

Thanks for the explanation but, I'm totally confused.

I'll keep going over the examples that have been given
and look for more info, maybe here on the FF beginners
section, until I get it! I want to try and figure it out.

Thanks again Pipsqueak, Forexharry and everyone for
your time and help!


P.S. Even though I'm still unclear as to the exact mechanisms
of the pairs, I'm still trying to employ some form of logic and
trying different setups...with pretty good success!

Here's one that looks at SW of GBP, USD and CHF against the EUR
on one side and against JPY on the other. You can gauge EUR and
JPY SW beyond the cross itself. As you can see from the shots below
SW doesn't need to be across the board necessarily.

I still need to understand the mechanisms involved in the pairs and
crosses construction and not blindly come up with setups!
But, here's this setup for now...
Attached Image(s) (click to enlarge)
Click to Enlarge Name: ej4.png Size: 45 KB
Click to Enlarge Name: ej5.png Size: 46 KB
  • #88
  • Oct 8, 2008 3:21pm Oct 8, 2008 3:21pm
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  • #89
  • Oct 8, 2008 4:55pm Oct 8, 2008 4:55pm
Scott............I downloaded the indicator and template and have spent some time trying to apply this to my trading; thanks again.

One question: Your template applies the indicator to a 1 hour chart. Is that the preferred time frame? Any comments about that would be welcome!

Quoting smjones
I do http://www.forexfactory.com/showpost...&postcount=466

I do not worry much about the actual chart numbers. I could normalize them the way you have done, but it is the movement that concerns me. Here is the MQ4 and anyone is welcome to build on it or change it entirely if they wish. Also included is the Template. I have made a lot of money by picking a strong currency and trading it against a weak currency.

You can also put an envelope on it and adjust the dev. I use.10 on 5 min and about .2 on 1hour. When the price jumps out of either boundary it can mean a strengthening or weakening of that currency based on whether it jumps the lower or the upper. I have just kept the envelope at 14 simple first indicator on each.
  • #90
  • Oct 8, 2008 5:04pm Oct 8, 2008 5:04pm
Quoting BeachBum
Scott............I downloaded the indicator and template and have spent some time trying to apply this to my trading; thanks again.

One question: Your template applies the indicator to a 1 hour chart. Is that the preferred time frame? Any comments about that would be welcome!
Hi BB, they are not a system, just a way of seeing strength and weakness. I have used them on both 5 minute and on 1 hour. I use price action to look for entries, not a signal from these. They are for direction of each currency.

If I had to choose, I keep them on 5 minute and zoom out with maximum bars to see direction and not individual bars. that is how I use them
  • #91
  • Oct 8, 2008 5:28pm Oct 8, 2008 5:28pm
Thanks Scott..........

I understand this is NOT a system, but rather a way of measuring currency strength or lack thereof. As stated at the beginning of this thread, I was looking for a simple way to measure strength for the purpose of matching a strong currency with a weak one and then looking MORE closely at THIS pair. My small TF trading results improve when I apply my own 'scalping' strategy to those pairs that fit into that criteria.

Quoting smjones
Hi BB, they are not a system, just a way of seeing strength and weakness. I have used them on both 5 minute and on 1 hour. I use price action to look for entries, not a signal from these. They are for direction of each currency.

If I had to choose, I keep them on 5 minute and zoom out with maximum bars to see direction and not individual bars. that is how I use them
  • #92
  • Oct 8, 2008 5:39pm Oct 8, 2008 5:39pm
Quoting BeachBum
Thanks Scott..........

I understand this is NOT a system, but rather a way of measuring currency strength or lack thereof. As stated at the beginning of this thread, I was looking for a simple way to measure strength for the purpose of matching a strong currency with a weak one and then looking MORE closely at THIS pair. My small TF trading results improve when I apply my own 'scalping' strategy to those pairs that fit into that criteria.
Yeah, That first part was mostly for others who have PMed and emailed me on this. I know what you were doing, sorry about that. Tried to combine two messages in one, but ended up confusing both... LOL
  • #93
  • Oct 8, 2008 8:08pm Oct 8, 2008 8:08pm
Quoting BeachBum
Thanks Scott..........

I understand this is NOT a system, but rather a way of measuring currency strength or lack thereof. As stated at the beginning of this thread, I was looking for a simple way to measure strength for the purpose of matching a strong currency with a weak one and then looking MORE closely at THIS pair. My small TF trading results improve when I apply my own 'scalping' strategy to those pairs that fit into that criteria.
That I agree. Most of us here have spent time trading forex. This thread simply giving us a different view of currency pairs and how they interact in terms of strength. For me, I have been using RSI from the very beginning. So this thread is just right for me to find the answer and combine it with my existing trading style. Since I have been using RSI from the beginning, combining the answer with my system is simple. Those of you using different approach may find it a bit more difficult. Infact, some may have to rebuild a new system.
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  • #94
  • Oct 8, 2008 9:04pm Oct 8, 2008 9:04pm
OK, no problem...................lol! Don't you just love it when you innocently post something that others jump at as if it was the 'ultimate' trading tool and then fill your Inbox with mail?

Quoting smjones
Yeah, That first part was mostly for others who have PMed and emailed me on this. I know what you were doing, sorry about that. Tried to combine two messages in one, but ended up confusing both... LOL
  • #95
  • Oct 8, 2008 9:57pm Oct 8, 2008 9:57pm
Hi,
I have been playing around with a spread sheet that I wrote that I think kinda does what you are after.
It uses the daily pivot points s1,2 r1 and 2 to gage the strongest and weakest currencies and then the logic automaticly tells you what that best
trade is. It uses a feed from an mt4 account.
Also it compares each currency agaist a basket of other currencies using the pivot as a gage.
it also uses a moving average to determine a trend so that I do not get signals agaist a trend.
It also will only put you in the turbo trade. ex.
usd/jpy up
eur/usd down
eur/jpy up the best trade here would be usd/jpy long
any three currencies can be set up this way. it can be volitale but it is worth it.
Hope this helps.
  • #96
  • Oct 8, 2008 10:12pm Oct 8, 2008 10:12pm
Quoting piedpiper
Hi,
I have been playing around with a spread sheet that I wrote that I think kinda does what you are after.
It uses the daily pivot points s1,2 r1 and 2 to gage the strongest and weakest currencies and then the logic automaticly tells you what that best
trade is. It uses a feed from an mt4 account.
Also it compares each currency agaist a basket of other currencies using the pivot as a gage.
it also uses a moving average to determine a trend so that I do not get signals agaist a trend.
It also will only put you in the turbo trade. ex.
usd/jpy up
eur/usd down
eur/jpy up the best trade here would be usd/jpy long
any three currencies can be set up this way. it can be volitale but it is worth it.
Hope this helps.
Would you mind sharing this spreadsheet with everyone? I'd love to take a look at it as I definitely think it'd be a good help with my overall assessment strategies.
Never underestimate the powers of the Force.
  • #97
  • Oct 9, 2008 1:31am Oct 9, 2008 1:31am
Quoting smjones
Hi BB, they are not a system, just a way of seeing strength and weakness. I have used them on both 5 minute and on 1 hour. I use price action to look for entries, not a signal from these. They are for direction of each currency.

If I had to choose, I keep them on 5 minute and zoom out with maximum bars to see direction and not individual bars. that is how I use them
smJones

Thanks for sharing your work.

I am trying to understand how the indicator code works but have no MQL experience. How is the chart information derived from the data please?

regards
FXP
  • #98
  • Oct 10, 2008 1:22pm Oct 10, 2008 1:22pm
My studies on this thread are really
helping me make better trades!

For sure I don't understand everything
yet and some things still seem contradictory.
But, the interactions and checks & balances
of crosses and components as well as inter-component
balances and imbalances are coming into focus
with time.

I encourage visitors to the thread
to look into it.

Have a good weekend and thanks again everyone!


P.S. For those interested in a system thread
using the CCFp indicator, these guys are going
strong:
http://www.forexfactory.com/showthread.php?t=113181
  • #99
  • Oct 10, 2008 4:25pm Oct 10, 2008 4:25pm
FX.............thanks for the link; more reading for the weekend!

Quoting FXSurfer

Have a good weekend and thanks again everyone!


P.S. For those interested in a system thread
using the CCFp indicator, these guys are going
strong:
http://www.forexfactory.com/showthread.php?t=113181
  • #100
  • Oct 18, 2008 8:17am Oct 18, 2008 8:17am
Quoting BeachBum
FX.............thanks for the link; more reading for the weekend!
BB, that thread has been closed here is the spin-off

http://www.forexfactory.com/showthread.php?t=116412

All you guys from here please go there, there's a couple indicators there that are very useful in this strategy and besides they need your brain power there cause there are some sharp ones here.

Best regards guys and thank you...
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