Your Toughest Problem in FX Trading

I watch and trade 16 currencies, I'd be lost without all 16 on my screen at once. Sometimes for example no market is moving on M1 and USDSGD suddenly breaks, and so so long as I have a fundamental thesis for the trade and am in agreement I go long GBPUSD, the riskiest risk currency (because the BoE rate is so low, among other things), for example. Often then it'll pop, the Singapore dollar having already popped a few moments earlier.

You can specialize with one currency I know some better than others when it comes to trading but you should be lost if you don't have at least EURUSD USDJPY GBPUSD EURJPY USDCAD USDCHF AUDUSD EURCHF and perhaps USDSGD open on your screen, the rest is contextual, take the example of my last trade, if I thought oil was cheap and the BoE was inclined to do more QE maybe I would have gone short USDCAD instead of GBPUSD.

Understanding the correlations that exist between currencies can help you determine which pairs you should trade. You should aim to pair negatively correlated currencies against each other, i.e. pairing the strong(est) against the weak(est) gives the strongest, cleanest trends.

When USD and JPY are positively correlated, which is often, a USDJPY chart will move sideways. AUD and NZD are likewise frequently positively correlated.

EUR and CHF, along with AUD and NZD, tend to all run counter to USD and JPY. Hence (for example) pairs like EURUSD or AUDJPY frequently exhibit good clean trends, on most timeframes. CHF was by far the strongest currency until the Swiss banking authorities took measures to arrest this a couple of months back; prior to this, one could make a fortune by simply selling USDCHF.

The screenshot shows that strongest currency this month has been AUD, and the weakest USD; consequently, buying AUDUSD would have generated the biggest pip harvest. It also shows USD and JPY moving pretty much in unison.

GBP is something of a loner. More recently it has been siding with USD and JPY, but it frequently tends to do it's own thing.

CAD is very erratic, occasionally siding with AUD and NZD.

Economic factors cause correlations to change over time. Another major contributing reason is how the major players view global economic sentiment: whether they are looking to invest in 'safe haven' or more 'speculative' currencies. And bank interventions, of course.

In looking whether to pair a currency against USD or JPY, consider which of the latter is stronger. If USDJPY is rising, then USD is stronger than JPY, hence you should buy a strong currency against JPY, and/or sell a weak currency against USD.

Another thing to keep in mind, is the triangular (and indeed, across-the-board) equilibrium that must be maintained. For example, if you take the current EURUSD rate and multiply it by the USDJPY rate, you'll get the EURJPY rate, i.e. EUR/USD x USD/JPY = EUR/JPY. Hence when one (or possibly two) of these pairs are 'driving' price movement (and therefore most likely respecting technical criteria, e.g. S/R), the third pair is a 'puppet' that is moving merely to maintain the required equilibrium. Extrapolate this across all possible combinations, and it's a very complex equation. This further highlights that any exchange rate is nothing more than an expressed ratio.

Given the above, and unlike GrRt suggests, I don't look to specialize in any particular pair. I'm willing to trade any pair(s) depending on how the correlations stack up.

Great post hanover, if I could vouch for you I would; is that one of your own indicators in the picture in your post?

I'll go and check now....

Yes, it is Recent Strength.

"Your Toughest Problem in FX Trading"

Finally getting myself to believe that I can "beat the average" whatever that may be.

It isn't that difficult until you "talk" yourself out of it.

Hi J, here's my thoughts on the matter. Most of us totally lose sight of WHY we began trading in the first place, which is simply to make money. I believe 99% of us end up getting "hooked" on the trading itself and lose the original purpose of why we are doing it. Trading has for me become very boring and most days, like any other job, I hate having to "go to work". It took me 6 years to get to the point where I stopped subconsciously using trading as a "game"; a "pass time"; or just for something to "try" and make money at. Now it's simply a job and has one purpose and one purpose only....TO MAKE MONEY!! Therefore the quality of my trade is far more important than how many currencies I can trade or how many trades a day I can make. A wise man once told me "if you can pull just 20 pips a day out of the market EVERY day...you will make a lot of money". It took me years to see and understand that wisdom and he was correct...today for me 20 pips is a no brainer and compounding is the key to success. Others will tell you "you can't make a living with just 20 pips unless you have a big account"...true; but there are many people who will throw money at you if you can prove to them what you can do....imagine taking your tiny 20 pips a day with $1000 trade of other peoples money from which you make a comfortable percentage profit. Why increase risk by trading more than two pairs at a time? MONITORING multiple pairs is necessary to find which ones are offering your "setup"..... if you have chosen your method; just stick to it and obey your rules. Your entries are equally or more important than your exits...if you get knocked out at the beginning....you'll never see the end profit...always look to enter around support and resistance areas; make sure your trade is a quality trade with a much larger probability than what you require; and don't be greedy. Remember, trading can definitely be addictive....and that's the main problem with most traders....they trade far more than they really need to do in order to fulfill the reason they began in the first place. Happy pips to you.

TrueBlue

I think you pretty much got it. Success is yours.

Best of trading.