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Strong - Weak Currency Analysis

  • #1
  • First Post: Aug 30, 2012 8:09am Aug 30, 2012 8:09am
Hey guys,

This is my first post in a long time so please bear with me. We all like winning trades no doubt, and we spend most of our time looking for an 'edge' that would tilt the scales in our favor.

When we trade currencies pairs we buy one and sell the other, we trade because we see something in our charts or because of a piece of news etc etc...something that could help give us a higher chance of winning is if we pit a strong currency together with a weak currency and buy the strong currency while selling the weaker currency. I felt this would be a good way to tip the scales in my favor, I found a number of indicators that attempted to show strength and weakness, and met a couple of people online who tried to gauge a currency's strength relative to its performance with a single currency, for example if we wanted to test the strength of the CHF as compared to the GBP we would look at its performance relative to the USD. This is useful to some extent but is time consuming and sometimes misleading, for obvious reasons.

I came across an article by Mr Richard Krivo and he uses a simplistic albeit unique style to look for strength and weakness in currencies. the link is as follows:

http://www.dailyfx.com/forex/educati...urrencies.html

I have slightly modified the method and find that it is extremely useful in helping me pick which currency pairs to trade. I would love to hear your thoughts on this,

Cheers
Abi
An investment in knowledge pays the best interest - Ben Franklin
  • #2
  • Edited 9:37am Aug 30, 2012 9:05am | Edited 9:37am
You're on the right track but looking at it the wrong way. Problem is from this perspective it's no different to saying "oh the EUR rallied the most yesterday, let's look to buy"... Too late I'm afraid, and more likely the reverse will happen in that the EUR would correct the most, as late money push it into over bought territory. But global money flows are what it's all about and I use a similar approach in certain markets, but not in the way you mentioned.

Instead of thinking what is the strongest currency, what is the weakest currency. Try asking yourself; What is being sold, OR what is being bought. I won't elaborate any more on this though. But between this slight change in words is the answer you are looking for if I'm understanding you correctly.
Time hides Nothing
  • #3
  • Aug 30, 2012 9:31am Aug 30, 2012 9:31am
Links are on the picture - google -all are free
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  • #4
  • Aug 30, 2012 9:38am Aug 30, 2012 9:38am
DOW - SP500
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  • #5
  • Aug 30, 2012 9:45am Aug 30, 2012 9:45am
Did you see the euro dip that was expected
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  • #6
  • Aug 30, 2012 10:00am Aug 30, 2012 10:00am
Do not forget to put small stop loss at entry _ chart explains
This was a live trade _Practice to get visual perfection
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  • #7
  • Aug 30, 2012 10:52am Aug 30, 2012 10:52am
Quoting CindyXXXX
You're on the right track but looking at it the wrong way. Problem is from this perspective it's no different to saying "oh the EUR rallied the most yesterday, let's look to buy"... Too late I'm afraid, and more likely the reverse will happen in that the EUR would correct the most, as late money push it into over bought territory. But global money flows are what it's all about and I use a similar approach in certain markets, but not in the way you mentioned.

Instead of thinking what is the strongest currency, what is the weakest currency. Try...
Thanks for your input Cindy, always appreciated. I totally get what you are saying and agree with you when you say that we may have already missed the move, but I do not think we should trade solely on the strong weak analysis. For eg, as per my analysis yesterday the EUR was a strong currency and the AUD a weak one, now I paired them together and saw that the general trend agreed with the strong weak analysis, ie the EURAUD was in an uptrend, so I bought out of a pull back and made a good number of pips.

I have been trying to get a feel for the global market flows but it is not as easy with the forex markets as it is with other markets, say equities due to the fact that we have too many participants and variables.

Cheers
Abi
An investment in knowledge pays the best interest - Ben Franklin
  • #8
  • Aug 30, 2012 10:55am Aug 30, 2012 10:55am
Appreciate the input highway, thanks. Have just signed up on the website and am getting a good feel for it. Could you elaborate a little on how you interpret the daily price action. I'd like to get some trader's take on it instead of the text-book version

Cheers
Abi
An investment in knowledge pays the best interest - Ben Franklin
  • #9
  • Aug 30, 2012 11:49pm Aug 30, 2012 11:49pm
Quoting abi2712
Thanks for your input Cindy, always appreciated. I totally get what you are saying and agree with you when you say that we may have already missed the move, but I do not think we should trade solely on the strong weak analysis. For eg, as per my analysis yesterday the EUR was a strong currency and the AUD a weak one, now I paired them together and saw that the general trend agreed with the strong weak analysis, ie the EURAUD was in an uptrend, so I bought out of a pull back and made a good number of pips.

I have been trying to get a feel for the...
Ok, no worries sounds like you have a good thing going, I won't interrupt. Good trade.
Time hides Nothing
  • #10
  • Aug 31, 2012 12:34am Aug 31, 2012 12:34am
hi... nice thread why there's not much people here?
i worshipped... Momentum
  • #11
  • Sep 1, 2012 4:51pm Sep 1, 2012 4:51pm
Strength meters are usually for 2 things: to see the overall currency conditions and to spot a lot of different anomalies. Due to the fact that mostly all of them don't represent the correct currency-value in raw Dollar there are 2 different methods for calculations: neutral and weighted.

The third method is a no program-calculation but an old dealer trick that enables you to gauge more precisely what's going on in the fx-background about money and liquidity shifting actions.

Then you can get a good clue if some pair will likely break out (hidden strength when most indicators show an extreme overbought scenario - that's the point when the pair will shoot straight up), fight/defense of an important level (strength/weakness becomes heavily inverse) and sometimes a liquidity lag where the currency-value isn't correctly spread among prime pairs ("false breakout" or a quick move that causes for several seconds a nearly perfect arb opportunity).
There are some more options but for a forex trader it's a huge advantage anyway if he knows how to use these information.
  • #12
  • Oct 4, 2012 6:22pm Oct 4, 2012 6:22pm
Quoting UnnamedPlayr
Strength meters are usually for 2 things: to see the overall currency conditions and to spot a lot of different anomalies. Due to the fact that mostly all of them don't represent the correct currency-value in raw Dollar there are 2 different methods for calculations: neutral and weighted.

The third method is a no program-calculation but an old dealer trick that enables you to gauge more precisely what's going on in the fx-background about money and liquidity shifting actions.

Then you can get a good clue if some pair will likely break out...

Thanks for your input, what is this old dealer trick exactly?
An investment in knowledge pays the best interest - Ben Franklin
  • #13
  • Oct 5, 2012 4:34pm Oct 5, 2012 4:34pm
It's simple.
Comparing the 4 prime pairs USD/JPY EUR/GBP CAD/CHF AUD/NZD against (non)major pairs (and/or even against strength meters).
  • #14
  • Oct 5, 2012 6:54pm Oct 5, 2012 6:54pm
My opinion of the strength sequent is (strong to weak)
D,((C,E),U,G)J,A
The one in the bracket are about the same, will move in a narrow range.
Face both Win and Lose bravely
  • #15
  • Oct 9, 2012 10:04pm Oct 9, 2012 10:04pm
Quoting abi2712
Hey guys,

This is my first post in a long time so please bear with me. We all like winning trades no doubt, and we spend most of our time looking for an 'edge' that would tilt the scales in our favor.

When we trade currencies pairs we buy one and sell the other, we trade because we see something in our charts or because of a piece of news etc etc...something that could help give us a higher chance of winning is if we pit a strong currency together with a weak currency and buy the strong currency while selling the weaker currency. I felt this...
Thanks for the thread.

This article crossed my path on Sept 25th and I immediately felt as you do... this might give a nice edge, or at the very least - might weight the probabilities in my favor a bit more.

I did not care much for the comparison of price to the 200sma on the 4 hour chart. So I eliminated the moving average, and the 4 hour chart too.

I have already built a couple of fib tools and developed some very basic rules for analysis, entry, stop loss, when to move the stop to break even and when and where to exit.

So far, I have about 30 samples. the Fill rate is about 80%. I have yet to see a stop loss hit. And each fill - at the very least - offers a move of the stop loss to break even (based on some basic rules for the backtest)

I will continue my backtesting and am tracking this live now. I will continue to post my findings here...

This looks very promising so far.......................
  • #16
  • Oct 9, 2012 11:30pm Oct 9, 2012 11:30pm
Quoting CindyXXXX
Instead of thinking what is the strongest currency, what is the weakest currency. Try asking yourself; What is being sold, OR what is being bought. I won't elaborate any more on this though. But between this slight change in words is the answer you are looking for if I'm understanding you correctly.
Cindy, I`m curious about your thoughts.........would you mind to give a different perspective here?

appreciate it.
  • #17
  • Oct 15, 2012 7:16pm Oct 15, 2012 7:16pm
Quoting deanoracer
Thanks for the thread.

This article crossed my path on Sept 25th and I immediately felt as you do... this might give a nice edge, or at the very least - might weight the probabilities in my favor a bit more.

I did not care much for the comparison of price to the 200sma on the 4 hour chart. So I eliminated the moving average, and the 4 hour chart too.

I have already built a couple of fib tools and developed some very basic rules for analysis, entry, stop loss, when to move the stop to break even and when and where to exit.

So far,...

Sounds good Deanoracer, looking forward to reading your analyses

Cheers
Abi
An investment in knowledge pays the best interest - Ben Franklin
  • #18
  • Oct 24, 2012 11:05pm Oct 24, 2012 11:05pm
Quoting Cowboy11
My opinion of the strength sequent is (strong to weak)
D,((C,E),U,G)J,A
The one in the bracket are about the same, will move in a narrow range.
There is got to be an advantage trading strong vs weak. Makes so much since. However i tried all of this before and found strength meters dont say much except what is going up and what is going down at the moment and changing every second. What is needed is a combination of sentiment and strength that will hold for the day. Anyone got any ideas for this? Comments appreciated. JJ
  • #19
  • Oct 24, 2012 11:27pm Oct 24, 2012 11:27pm
Review daily is very important. My observation now is
A,(U,D),(G,C,E),J
Any pull back on the H1 or M15 chart provide a good entry point.
Face both Win and Lose bravely
  • #20
  • Oct 25, 2012 1:16am Oct 25, 2012 1:16am
Quoting abi2712
Thanks for your input Cindy, always appreciated. I totally get what you are saying and agree with you when you say that we may have already missed the move, but I do not think we should trade solely on the strong weak analysis. For eg, as per my analysis yesterday the EUR was a strong currency and the AUD a weak one, now I paired them together and saw that the general trend agreed with the strong weak analysis, ie the EURAUD was in an uptrend, so I bought out of a pull back and made a good number of pips.

I have been trying to get a feel for...
that is good..... do an analysis for equities then...the correlation coefficient between the S&P index and the Eur/usd is .69
so If your analysis says equities are bullish or risk on environment is present then odds are you want to position yourself shorting the USD than means buying either GBP,EUR,AUD,NZD. according to your strong currency analysis.
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