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Money flows: Trading the strongest / weakest major currency cross

  • #81
  • Jul 17, 2012 7:33pm Jul 17, 2012 7:33pm
Quoting lemna
Thanks to Unknown4X and all contributors here for a very interesting thread.
I'm interested in opening a discussion into what kind of technicals and time frames people are finding most suitable for use with the kind of short and sharp flows we are getting in current markets.
At the moment I am using a fairly crude tool of entering on engulfing bars on the 15m time frame on the strongest/weakest pair from the Frankfurt open from 1 hour after London open. With properly managed exits it is profitable, but I'm sure it could be more so. I exit when the...
TA wise anything can be used. I like to keep it as simple as possible though. The edge isnt necessarily in being 100% right on that single pair but on the broad market. So you want something that you can look at and pretty much make an instant decision "looks good" and that for a whole bunch of instruments.


I usually trade AU, EU, GU these days. For each pair i monitor about 9 crosses and 3-4 synthetic instruments. I usually trade of M2-M3 with frequent visits to M5/M15/H1 and a brief morning visit to D1 etc. just to know where stuff might get funky. So bottom line... anything that gives are a somewhat precise evaluation in a fast / efficient way does it. You don't need to spot a level to the pip or whatever. Doesn't matter. If you trade fresh flows any level that is in short reach will get blown away anyway.


You can also do it on the daily but you need the patience or experience to trade unbalanced flows (mixed breakout / retrace flows at the same time) but it makes much more sense to trade out of the lowers with the highers in mind.
  • #82
  • Jul 19, 2012 1:40am Jul 19, 2012 1:40am
Hi Unknown4x

Thank for your reply. Makes alot of sense. I think I have the overall idea down but I'll wait for #6 and #7 and some examples before I get a better grasp of how to apply it.
  • #83
  • Jul 19, 2012 6:08am Jul 19, 2012 6:08am
I will cut it short and add a few links to already trusted resources on those topics. I'm not doing any magic there as i said its not about being 100% correct on a single minor its about being correct on the overall market.
  • #84
  • Jul 19, 2012 6:13am Jul 19, 2012 6:13am
#6 Identify single cross strength/weakness #1 - MAs, Midpoints, Fibs, Pivots

Moving Averages: http://www.babypips.com/school/eleme...ving-averages/
Pivots: http://www.babypips.com/school/middl.../pivot-points/
Fibs: http://www.babypips.com/school/elementary/fibonacci/


For Midpoints read through the posts of:

gator: http://www.forexfactory.com/gatorinla

ptl: http://www.forexfactory.com/paythelimit

and also the Fibs / Pivots since Fibs are centred around the 50% mark just like Pivots represent it depending on the way you calculate them + got mid points between mid points too.
  • #85
  • Jul 19, 2012 6:18am Jul 19, 2012 6:18am
#7 Identify single cross strength/weakness #2 - Supply / Demand - S/R Levels

S/R - http://www.babypips.com/school/eleme...stance-levels/
S/D - http://www.forexfactory.com/showthread.php?t=352479
  • #86
  • Edited 6:39am Jul 19, 2012 6:21am | Edited 6:39am
#9 - Timeframes

MTF - http://www.babypips.com/school/multi...-analysis.html

Just like with TA/FA, PA, Indicators whatever there is a zillion of people advocating trading the M1 and another zillion of people advocating trading nothing below Daily.


As always the truth is in the middle and not at the extremes. If you are daytrading the D1+ obviously will if at all only serve as a guide for bigger levels and besides that not be of much concern to you.


Overall everything starts out of the tick charts. Daily charts don't dictate the tick or minute charts but the other way round. They are just a compressed form of the tick charts.


Is a lower tf more dangerous than a higher one? Clearly: no. People tend to advocate that lower tfs are just random noise and real trades take place in higher charts. That is wrong. Every move happens in the same way in every timeframe no matter if M1 or D1. The reason why people's safety perception towards higher timeframes is greater is simply because of the following reasons:


1) There are less timeframes above a D1 chart that can stop it than above a M1 chart.
2) M1 charts will show you pretty much all market patterns within a single day. On a daily that might take months / years so people watch M1 for a day (1440 bars) and are like "random noise... untradable". Then they watch the daily for a month (although they should be watching it for the same amount of candles - ~ 4 years) and are like - wow looks nice... daily is much better than M1.
3) They put much larger stops on higher timeframes which over a small sample period always - because of the oscillating nature of forex - puts them a bit in profit even on a really bad trade. They forget about their R/R. No SL traders are the primary species here. A few months or a year of profit here is no indication of a "working system" at all.


The correct approach is using multiple timeframes which suit your strategy, trading times, return expectancy etc.


The M1 timeframe is just as reliable as the D1 if you do it right and check the upper timeframes of it for the correct alignments / s/r whatever. A daily will start to chop / fail too once it reaches the point where weekly/monthly contradicts. Always check a (few) lower + higher timeframes.
Then it doesn't really matter which timeframe you trade. Intraday i would recommend M2/M3 with M5/M15/H1 as bigger picture. A short look at the H4/D1 is never bad at the beginning of the day. If you don't fulltime daytrade then just take higher combinations. Every timeframe works in the same way - depends on lower/higher timeframes of it in the same way. There is no difference at all no matter what people try to tell you.
  • #87
  • Jul 19, 2012 9:46am Jul 19, 2012 9:46am
Thanks alot unknown4x.

Just a quick question.

I was considering going short on the double pinbar on the 4hr chart on Eur/Usd. So we basically I want Eur to weaken and USD to strengthen.

Looking at the Gbp/Usd and Aud/Usd I see the previous 4hr bars are bullish so not supporting the move. Also Usd/Cad and Usd/Jpy showed bearish bars so again the move is not supported so basically there is no real flow into USD that's supporting the Eur/Usd drop.

On the Eur side, Eur/Gbp, Eur/Aud and Eur/Jpy all support EUR weakness in the last bar.

So basically the signal is based not on USD strength but EUR weakness and so Eur/Usd should not be the pair to look to short but rather one that is showing more strength like Eur/Aud or Eur/Jpy?

I just want to clarify if my thinking is moving in line with what you are saying in this thread.
  • #88
  • Jul 19, 2012 10:03am Jul 19, 2012 10:03am
Quoting unknown4x
beyon actually i forgot one. Here is a very nice read into general index calculation stuff that should get you going with custom ones.

http://www.cutthespread.com/spread-b...urrent-reality

http://www.cutthespread.com/spread-b...s-dollar-index

http://www.cutthespread.com/spread-b...sal-euro-index
Hi unknown4x, thanks for the reference. I actually made those calculations and update the indices daily. It seems that WSJ likes the idea and created the WSJ USD Index using the exact same methodology http://www.dowjones.com/pressroom/sm...ollarIndex.asp
  • #89
  • Jul 19, 2012 10:05am Jul 19, 2012 10:05am
Yes basically your observation is spot on in the first place.


Now what you are going to trade is up to you. Me for example i waited for audusd usdcad to flip on m2 while eurcad eurjpy eurcad eurgbp where short and pulled the trigger on both audusd and eurusd since both were weaker against the correlated usd flows but audeur starting to show weakness on the breakout although going against support at which point then eurusd got another push through euraud for a 2nd down.


This kind of thing is of course not visible on H4 but you were right about the overall picture. The setup started out as eur weakness and usd mildly followed later on.


So either you do it like me and wait for corresponding usd flows (but they should be kinda in sync a very late usd flow into an already exisiting / way gone e.g. eur flow) usually leads to a trade in the opposite pair e.g. euraud is way way short and audusd follows can easily lead to euraud pullback and bigger audusd trade than eurusd or you get chop till euraud pulled back to breakout point at which point audusd will break away along with it again and you get your picture perfect trade)


Another option is what you observed - trade the minors. You just have to apply the logic to the other side then. e.g. for euraud you want audusd / aud minors up, eurusd down, eur minors down. Best is always triplets e.g. in that case audusd up, eurusd down, euraud down, audjpy up, eurjpy down, euraud down etc.


I only trade the usd majors and from time to time the jpy minors but you can trade anything with it. Just keep in mind that certain pairs have certain pip values and pip expectancies which even if one is stronger than another don't make it worth it but of course still more safe.,


Quoting Alienonweed
Thanks alot unknown4x.

Just a quick question.

I was considering going short on the double pinbar on the 4hr chart on Eur/Usd. So we basically I want Eur to weaken and USD to strengthen.

Looking at the Gbp/Usd and Aud/Usd I see the previous 4hr bars are bullish so not supporting the move. Also Usd/Cad and Usd/Jpy showed bearish bars so again the move is not supported so basically there is no real flow into USD that's supporting the Eur/Usd drop.

On the Eur side, Eur/Gbp, Eur/Aud and Eur/Jpy all support EUR weakness in the last bar.

So basically...
  • #90
  • Jul 19, 2012 10:10am Jul 19, 2012 10:10am
Always remember - a minor does not mean anything if the corresponding major is not aligned e.g. eurgbp short does not tell you a damn thing about if eur is weak it - just like i wrote in the first posts - it could be either eur weakness or gbp strength so you need a counter to check it e.g. gbpusd. eurusd + gbpusd long with eurgbp short would signal eur weakness at least against gbp. If you got multiple such correlations going you can say for sure that eur is weak.
  • #91
  • Jul 19, 2012 10:16am Jul 19, 2012 10:16am
Quoting cutthespread
Hi unknown4x, thanks for the reference. I actually made those calculations and update the indices daily. It seems that WSJ likes the idea and created the WSJ USD Index using the exact same methodology http://www.dowjones.com/pressroom/sm...ollarIndex.asp


Hi cts,


welcome and thanks for your nice articles.


Yes multiple sources do it in a similar way. Markit supplies calculations for all major currencies even. They do seem to just rebalance the official volumes but not take into account new majors like audusd though.
  • #92
  • Jul 20, 2012 4:54am Jul 20, 2012 4:54am
Quoting unknown4x
Hi cts,


welcome and thanks for your nice articles.


Yes multiple sources do it in a similar way. Markit supplies calculations for all major currencies even. They do seem to just rebalance the official volumes but not take into account new majors like audusd though.
What is interesting is that the two journalists from WSJ talk about the index just created as if it were originally created by them...
  • #93
  • Jul 20, 2012 5:45am Jul 20, 2012 5:45am
Quoting cutthespread
What is interesting is that the two journalists from WSJ talk about the index just created as if it were originally created by them...
Of course... they are WSJ... they don't reinvent the wheel... they invented it...


Matter of fact the original indices decades ago were exactly the same just different weights. 100s have used every number available to calculate new indices in the mean time. Everyone likes to call it a new invention. Sells better...
  • #94
  • Jul 20, 2012 6:29am Jul 20, 2012 6:29am
In any case, it is interesting the same choice of using BIS data to rebalance the indices every three years...
  • #95
  • Jul 20, 2012 6:35am Jul 20, 2012 6:35am
Quoting cutthespread
In any case, it is interesting the same choice of using BIS data to rebalance the indices every three years...
Pitty that us mere mortals can't get monthly/yearly BIS data...

They do? Markit does it 31.12 each year.


But i have to say i have done lots of indices work over the years and i really mean _A LOT_... but at the end nothing beats proper major/minor analysis. I got about 30 synthetic indices of my own which do create a phenomenal hitrate even on their own without watching the major itself but at the end the simple major/minor analysis even beats them.
  • #96
  • Jul 20, 2012 6:40am Jul 20, 2012 6:40am
Quoting unknown4x
Pitty that us mere mortals can't get monthly/yearly BIS data...

They do? Markit does it 31.12 each year.


But i have to say i have done lots of indices work over the years and i really mean _A LOT_... but at the end nothing beats proper major/minor analysis. I got about 30 synthetic indices of my own which do create a phenomenal hitrate even on their own without watching the major itself but at the end the simple major/minor analysis even beats them.
Interesting your work. I have to read more carefully on this thread about it in order to better understand what you're exactly doing and what mean with those major/minor analyses.

When I "created" CTS USD Index was more as a theoretical exercise to surpass the problems of known indices and to summarise in a single figure everything. No commercial intuit on that!
  • #97
  • Jul 20, 2012 6:43am Jul 20, 2012 6:43am
If there is interest i can start an interactive thread and provide some more or less realtime insight into what i am watching at. I won't give any signals though. I do pure breakout + bounce trading.
  • #98
  • Jul 20, 2012 6:48am Jul 20, 2012 6:48am
Quoting cutthespread
Interesting your work. I have to read more carefully on this thread about it in order to better understand what you're exactly doing and what mean with those major/minor analyses.

When I "created" CTS USD Index was more as a theoretical exercise to surpass the problems of known indices and to summarise in a single figure everything. No commercial intuit on that!
Yeah your articles are also very good in explaining the overall calculation behind indices. Well written.


Somewhere in the first posts i have written about the problems why indices always fail at some point (the away from baseline section).


I have thought about creating a dynamic one from time to time that uses certain techs to take such off-balance things into consideration but have not really worked on it anymore. Kinda like refactoring based on how leveled everything is. e.g. GU is way gone while EU is still bearish so it automatically cuts down the weight of GU or something like that but that also got its problems since 90% of the time what will follow is chop chop since GU is back at baseline. Same for every other breakout. Logic is simple too... money was/is in GU so every other breakout is imperfect / fake.


The best synthetics i have created are based on multiple majors along with a selected choice of correlated minors which essentially comes down to the whole triplet watching logic.
  • #99
  • Jul 20, 2012 8:06am Jul 20, 2012 8:06am
Quoting unknown4x
If there is interest i can start an interactive thread and provide some more or less realtime insight into what i am watching at. I won't give any signals though. I do pure breakout + bounce trading.
Hi unknown,

an interactive thread would be helpful. I have programmed the indices but am struggling with the analysis. For example: what do you consider strong - a return (RoC) on a bar (several bars) bigger than x, slope of small period MA bigger than y, plain price action, etc. Off course I am not asking for a recipe, am ready for my own homework, but just a general direction.

And thank you for this thread - it is very insightful.

Regards,
qooyend
  • #100
  • Jul 20, 2012 8:08am Jul 20, 2012 8:08am
Quoting qooyend
Hi unknown,

an interactive thread would be helpful. I have programmed the indices but am struggling with the analysis. For example: what do you consider strong - a return (RoC) on a bar (several bars) bigger than x, slope of small period MA bigger than y, plain price action, etc. Off course I am not asking for a recipe, am ready for my own homework, but just a general direction.

And thank you for this thread - it is very insightful.

Regards,
qooyend


Hi,


that is up to you. You can use pretty much anything. Check the #6 and #7.
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