Are non-USD pairs reactive in nature from a technical aspect? | Forex Factory

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Are non-USD pairs reactive in nature from a technical aspect?

  • #1
  • First Post: Edited 12:52am Jan 31, 2013 12:18am | Edited 12:52am
I am a completely technical trader and stick to 4 main pairs; EUR/USD, AUD/USD, USD/JPY, and the GBP/USD. I wanted to get other trader's opinions on whether or not my rational for sticking to these pairs is justified or not. To clarify, I have been doing well trading these pairs and have learned their price action quite well. I don't plan on changing a working strategy any time soon. However the greater detail I understand the market as a whole the better trader I can ultimately be.

So my question is about the technical movements of a pair such as the EUR/AUD when there is no real fundamental play occurring. My suspicion is this: When the EUR/AUD is rising, it is because it is reacting to the EUR/USD going up, and the AUD/USD going down and not necessarily because of technical analysis patterns on the EUR/AUD chart. I'm curious as to if it's truly as reactive in nature as I am suspecting it is, and only having real movements due to the much higher volume traded pairs, especially the EUR/USD.

What are your thoughts/experiences?
  • #2
  • Edited 7:34am Feb 2, 2013 6:36am | Edited 7:34am
You are correct. Using a calculator, multiply the current price of eur/aud by the current price of aud/usd - the result will always be the current price of eur/usd. This correlation exists across all sets of three currencies. Instead of thinking about the movement of pairs though, try thinking in terms of individual currencies moving. When the USD strengthens it pushes eur/usd and aud/usd down together. When AUD weakens it pushes eur/aud up and aud/usd down simultaneously.

I trade the same five currencies as you, but I trade all ten pairs consisting of those five individual currencies. Before I trade anything, the first thing I do is compare all the currencies to find which one is currently the strongest and which one is currently the weakest, I look to long the strongest against the weakest. If eur/usd is moving up, it still seems silly to me to trade it if usd/jpy is also moving up - that tells me jpy is even weaker than usd, so eur/jpy is the pair to trade. Try this.

You are questioning the validity of technical analysis on eur/aud when the price is clearly driven by its relationship to eur/usd and aud/usd. I go one step further, I think such analysis on any pair (even the majors) is nonsense when those correlations are so obvious and unflinching. When gbp/usd bounces off support, it means the other pairs involving usd and/or gbp have also reversed, regardless of whether or not there was support on those charts. It just doesn't seem to add up.

I have brought this up before but I tend to get shouted down by devout adherents of support/resistance and candlestick chartists. They will be here soon.
si hoc legere scis nimium eruditionis habes
  • #3
  • Feb 2, 2013 7:32am Feb 2, 2013 7:32am
Yes, crosses behave differently, things like support and resistance doesn't work quite so well in crosses, because its value is determined mainly by its big brothers: majors.

Probably the most extreme example is gold/silver chart. Now.. i don't know what is gold/silver volume, but i suspect it is close to nonexistant comparing to gold/usd and silver/usd. What sort of technical analysis work in crosses? I think long term trends, but it is just how i feel, i don't have a data to confirm this. I remember looking at gold/silver chart and it was ridiculous how well and long defined was trend, also when it got in range it was very long and very precise.

When i looked at eur/gbp i found that it might have a lof of intraday noise.. like constantly 10 pip up 10 pip down, but on longer term trend was well defined. As i rememebr aud crosses also trended nicely.

If you are looking for correlation things then i would suggest looking at USDINX, support/resistance work quite well over there and it has started many movements in eru/usd and other pairs which could not be predicted in advnce just by looking at particular pair.
  • #4
  • Feb 2, 2013 10:14am Feb 2, 2013 10:14am
SemperOorah,

I don't have much to add, both ARTjoMS and numbnuts posted excellent replies and my reply is more on the technicals of a response.

What I can tell you is what I've found is some pairs for example when you want to draw out fibs, some pairs respond better when the lines are drawn wick to wick. While others are body to body.

Here's a study I did on weekly pivot to pivotand the hit ratios of each fib level when a static set of lines are drawn from the Weekly Pivot to the Weekly S1/R1.
The intial determination of how to draw the line is what side of the WP the currency opens the first hour of trading on Sunday (Here in the US)
If you go through the spread sheets, you'll see how each currency reacted.
Some currencies I tested but didn't add to the spreadsheet performed so poorly that I knew it's a trade I would never take.

http://www.forexfactory.com/showthread.php?t=367132

What I did was reviewed my ideas on different currencies in ForexTester. From there I determined how and if I'd trade it.

Sorry if it's off topic a bit by not addressing the fundies.

PH
  • #5
  • Feb 2, 2013 3:28pm Feb 2, 2013 3:28pm
Great answers guys, thanks. Your's in particular numbnuts (lol) was insightful to my particular strategy. I trade with extremely tight stops targeting 7-15 pips, again for completely technical reasons. It would appear I have no business applying this to something like the EUR/AUD. Even if EUR is the strongest pair against the AUD being the weakest, it probably would not have enough bearing on a 7-15 pip strategy to apply it.
  • #6
  • Feb 2, 2013 5:00pm Feb 2, 2013 5:00pm
If you are trading on time bars, why not try Range or Renko and see what happens? Create a box or range that accommodates your stops.
  • #7
  • Feb 3, 2013 3:53am Feb 3, 2013 3:53am
Quoting SemperOorah
Great answers guys, thanks. Your's in particular numbnuts (lol) was insightful to my particular strategy. I trade with extremely tight stops targeting 7-15 pips, again for completely technical reasons. It would appear I have no business applying this to something like the EUR/AUD. Even if EUR is the strongest pair against the AUD being the weakest, it probably would not have enough bearing on a 7-15 pip strategy to apply it.
Then go for more pips, and reduce your position size so the money value is the same. The number of pips you target should be derived from price action on your charts, don't try to use a fixed number of pips across different pairs and in different market conditions. The market won't reshape itself to fit your system, you have to shape your system around market conditions then adjust your position size to regulate the amount of money you risk/target.
si hoc legere scis nimium eruditionis habes
  • #8
  • Feb 3, 2013 4:00am Feb 3, 2013 4:00am
Quoting SemperOorah
I am a completely technical trader and stick to 4 main pairs; EUR/USD, AUD/USD, USD/JPY, and the GBP/USD. I wanted to get other trader's opinions on whether or not my rational for sticking to these pairs is justified or not. To clarify, I have been doing well trading these pairs and have learned their price action quite well. I don't plan on changing a working strategy any time soon. However the greater detail I understand the market as a whole the better trader I can ultimately be.

So my question is about the technical movements of a pair such...


http://www.forexticket.us/en/tools/01-01-correlation
  • #9
  • Edited 1:55pm Feb 3, 2013 1:17pm | Edited 1:55pm
Quoting allisonmagic
http://www.forexticket.us/en/tools/01-01-correlation
Thanks, don't have the time right this minute to dabble with that but certainly looks like a useful tool.

Quoting numbnuts
Then go for more pips, and reduce your position size so the money value is the same. The number of pips you target should be derived from price action on your charts, don't try to use a fixed number of pips across different pairs and in different market conditions. The market won't reshape itself to fit your system, you have to shape your system around market conditions then adjust your position size to regulate the amount of money you risk/target.
Can't argue with that because it is sound advice, however 'going for more pips' with less money would totally throw off my game as to what's been working for me. I'm not suggesting the market will shape itself to fit my system, however there are more than enough opportunities for me to be profitable with the target setups that typically gets me those amount of pips in those 4 currency pairs.

If you're interested, I do have a journal with live trades in it. Should be able to explain what I mean better. http://www.forexfactory.com/showthread.php?t=402660 As always, interested in opinions.

Personally over the last year of tracking myself the correlation is simple; The shorter timeframe I trade, the better I am at it. Also it might be because I simply need more experience, but I feel I cannot truly focus on price action for more than 4 pairs right now.

Not trying to be hard-headed, I appreciate your advice and at the very least gave me something to consider for the future.
  • #10
  • Feb 3, 2013 1:33pm Feb 3, 2013 1:33pm
Quoting SemperOorah
Thanks, don't have the time right this minute to dabble with that but certainly looks like a useful tool.



I hear you, however 'going for more pips' with less money would totally throw off my game as to what's been working for me. I'm not suggesting the market will shape itself to fit my system, however there are more than enough opportunities for me to be profitable with the target setups that typically gets me those amount of pips in those 4 currency pairs.

If you're interested, I do have a journal with live trades in it. Should be able to...

you have time to trade the market and come post here but you dont have time to learn ? makes sense
  • #11
  • Feb 3, 2013 1:36pm Feb 3, 2013 1:36pm
Quoting SemperOorah
Thanks, don't have the time right this minute to dabble with that but certainly looks like a useful tool.



I hear you, however 'going for more pips' with less money would totally throw off my game as to what's been working for me. I'm not suggesting the market will shape itself to fit my system, however there are more than enough opportunities for me to be profitable with the target setups that typically gets me those amount of pips in those 4 currency pairs.

If you're interested, I do have a journal with live trades in it. Should be able to...

no need to focus on them.. just set alerts for yourself.. i watch 20 different pairs, exotic mostly.. i just setup alerts so i don't have to sit and watch them all day.. my system just sends a message to my phone and tells me what's goin on with the charts i'm watching
  • #12
  • Feb 3, 2013 1:39pm Feb 3, 2013 1:39pm
Quoting allisonmagic
you have time to trade the market and come post here but you dont have time to learn ? makes sense
I truly appreciate everyones opinion because all of the perspectives people have makes you see the market in a different light sometimes. Posts like this are immature and uncalled for. If you want to continue this discussion please do it through the PM's so people don't have to sift through this nonsense.
  • #13
  • Edited 1:55pm Feb 3, 2013 1:41pm | Edited 1:55pm
Quoting SemperOorah
I truly appreciate everyones opinion because all of the perspectives people have makes you see the market in a different light sometimes. Posts like this are immature and uncalled for. If you want to continue this discussion please do it through the PM's so people don't have to sift through this nonsense.

if you dont like it, dont brush me off when i'm trying to help you..
  • #14
  • Feb 3, 2013 2:04pm Feb 3, 2013 2:04pm
Quoting numbnuts
You are correct. Using a calculator, multiply the current price of eur/aud by the current price of aud/usd - the result will always be the current price of eur/usd. This correlation exists across all sets of three currencies. Instead of thinking about the movement of pairs though, try thinking in terms of individual currencies moving. When the USD strengthens it pushes eur/usd and aud/usd down together. When AUD weakens it pushes eur/aud up and aud/usd down simultaneously.

I trade the same five currencies as you, but I trade all ten pairs...
Thank you for your post - there are some interesting things said here that I had to think about, but now I'd like to make a reply as the devil's advocate. If we remove the currency crosses because of the triangular arbitrage factor (which is the reason behind that mathematical link), we have the most liquid and independent markets, or the majors. You contend that when you buy or sell that you're buying or selling a particular currency, and this is implied to be independently. However, no currency has a specific intrinsic value unless it is compared to something else - as with anything on the planet. These most liquid markets are in my view independent of one another in terms of mathematical edges. This is evident in the fact that despite geopolitical macroeconomic ties in some currencies such as the EUR/USD and the USD/CHF, correlations are far from exact and fluctuate all the time. When you buy EUR/USD, you're not buying the Euro. You're buying the pair. It follows that technical analysis methods like supply and demand that have a logical rationale to why they work would not be eliminated for any of the reasons you mention.
  • #15
  • Feb 3, 2013 2:12pm Feb 3, 2013 2:12pm
Quoting Kanzler
Thank you for your post - there are some interesting things said here that I had to think about, but now I'd like to make a reply as the devil's advocate. If we remove the currency crosses because of the triangular arbitrage factor (which is the reason behind that mathematical link), we have the most liquid and independent markets, or the majors. You contend that when you buy or sell that you're buying or selling a particular currency, and this is implied to be independently. However, no currency has a specific intrinsic value unless it is compared...
That does make a lot of sense Kanzler. I can only think of one way to test this but it would be extremely difficult. Let's say the EUR/USD is setting a textbook double bottom while the EUR/AUD is setting a textbook double top. Now there are endless combinations of technical analysis patterns that could instantaneously contradict each other, but my question would be exactly how often would the EUR/AUD pattern be ignored in order to follow suit with the EUR/USD pattern.

Would it be fair to say that it would be enough times to make it not worth trading it on technical levels? Would you agree with that?
  • #16
  • Last Post: Feb 3, 2013 2:34pm Feb 3, 2013 2:34pm
Quoting SemperOorah
That does make a lot of sense Kanzler. I can only think of one way to test this but it would be extremely difficult. Let's say the EUR/USD is setting a textbook double bottom while the EUR/AUD is setting a textbook double top. Now there are endless combinations of technical analysis patterns that could instantaneously contradict each other, but my question would be exactly how often would the EUR/AUD pattern be ignored in order to follow suit with the EUR/USD pattern.

Would it be fair to say that it would be enough times to make it not worth trading...
I honestly don't know, which is why I avoided discussing crosses in my reply. If the mathematics are valid (I didn't check), then he has a compelling case, and the higher volume major pair would drag the lower volume pair along. At the same time, I see supply and demand working on crosses all the time, almost as frequently as it does on major pairs. The reason for this is something I don't have a clear explanation for. This is in fact a fairly complex subject, and perhaps someone with more experience could provide their insights.
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