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trying to understand the market

  • #1
  • First Post: Jun 24, 2014 8:21am Jun 24, 2014 8:21am
Dear all,

I am trying to understand some basics of the market. But I am stuck at understanding the following:

On 13 june at 12 o'clock my time I had opened 28 orders. 1 of each of the major currency pairs.
During this time the gbpcad went down 180 pips. the audcad went down 140 pips.

If I look at those 2 pairs, I would think that the gbp would be weaker then the aud. However the gbpaud went up for 70 pip during this time.
If i compare the gbpusd and audusd at this same period then the gbpusd went up and the audusd went down.

So if i compare the gbp and aud to the cad. then the result is that the aud is stronger.
if I compare the gbp and aud to the usd. then the result is the gbp is stronger.
and if I compare them to each other the gbp is also stronger.

So my question is how is this possible? I had expected that if I compare the same 2 currencies to another 3rd currency, the result would always be that either currency 1 or 2 is the stronger one at that moment no matter to which other pair I compair it to, but this seems not to be the case. Hopefully someone can explain why this is not the case.

Thank you and please forgive my English as it is not my mother language.
  • #2
  • Jun 24, 2014 8:59am Jun 24, 2014 8:59am
Quoting dutchi81
Dear all, I am trying to understand some basics of the market. But I am stuck at understanding the following: On 13 june at 12 o'clock my time I had opened 28 orders. 1 of each of the major currency pairs. During this time the gbpcad went down 180 pips. the audcad went down 140 pips. If I look at those 2 pairs, I would think that the gbp would be weaker then the aud. However the gbpaud went up for 70 pip during this time. If i compare the gbpusd and audusd at this same period then the gbpusd went up and the audusd went down. So if i compare the...
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  • #3
  • Jun 24, 2014 9:39am Jun 24, 2014 9:39am
I think you are confusing pips with percentages.

Rerun the logic but use percentages instead of pips... (not all pips are equal!!)

Regards
  • #4
  • Jun 24, 2014 10:21am Jun 24, 2014 10:21am
Quoting BBCMicro
I think you are confusing pips with percentages. Rerun the logic but use percentages instead of pips... (not all pips are equal!!) Regards

Dear BBCMicro,

thank you for your reply. So to judge if a currency is stronger i should base it on percentage instead of pips?

the gbpcad went down from 1.8418 to 1.8230 which is about 1.03% down and around 190 pips at this moment
the audcad went down from 1.0210 to 1.0077 which is about 1.27% down and around 130 pips at this moment

If I look at it this way, then the gbp would be stronger then the aud.

So is this the correct way to look at it?

Thank you for your help.
  • #5
  • Jun 24, 2014 10:36am Jun 24, 2014 10:36am
Quoting dutchi81
Dear all, I am trying to understand some basics of the market. But I am stuck at understanding the following: On 13 june at 12 o'clock my time I had opened 28 orders. 1 of each of the major currency pairs. During this time the gbpcad went down 180 pips. the audcad went down 140 pips. If I look at those 2 pairs, I would think that the gbp would be weaker then the aud. However the gbpaud went up for 70 pip during this time. If i compare the gbpusd and audusd at this same period then the gbpusd went up and the audusd went down. So if i compare the...

If you are just trying to understand the market I wouldn't start with learning this, there is nothing basic about this subject. This is probably one of the most advance things you could learn and you might be putting the cart way before the horse. The market is not as straight forward as what you read in a book, and that is because orders are always coming in, and the result of your past analysis even if only one minute ago is changing all the time. The movement that you see on the chart are always late, even if by a second because the orders has to be placed before it is filled. But I would advise that you start with an easier subject and study S/R and see what happens there, then go on to market structure then multi timeframe analysis, take it step by step. Don't believe anything I say, research yourself. Hope that helps.
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  • #6
  • Jun 24, 2014 11:31am Jun 24, 2014 11:31am
I'm no professional trader by no stretch but I have pretty decent math skills. I've explored the same line of thought you seem to be on to at the moment. What I realize is that no matter which way a currency pair is moving the mathematical relationship, which is the ratio of the pairs, which is the rate itself, will always be satisfied. So if you take your pairs and play with the math, for example audusd x gbpaud = gbpusd and gbpusd x usdcad = gbpcad and audusd x usdcad = audcad... At any given instant in time these will all hold true. It is called "correlation" if I'm not mistaken. I don't know what you mean by compare though. Maybe you already know this...
  • #7
  • Jun 26, 2014 2:48am Jun 26, 2014 2:48am
Dutchi81, I understand your confusion - but what I would say is that you need to look at each pair in insolation, I'm not saying there isn't correlation between certain sets of pairs. But just because traders sold the gbp vs the cad it doesn't mean traders will not buy the gbp versus the aud. There are many things that move markets: fundamentals of a currency, technicals on charts and more importantly human emotions (in particular fear and greed).

As sanebane righty stated, learn about the markets step by step dont rush your learning and always continue to learn even when you become successful.

On another note I hope those 28 trades went well, in my opinion I think thats way too much trades to have open at the same time for someone who wants to understand the basics lol.




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  • #8
  • Last Post: Jun 26, 2014 8:16pm Jun 26, 2014 8:16pm
I see you joined in 2013, and are now well on your trading path. I wish you all the success. If you sold GBP/CAD you would have been up by 180 pips, if you bought AUD/CAD you would have been -140 pips . i.e. overall +40. If you look at these two pairs what you actually did was indirectly sold GBP/AUD. To hedge this trade if you bought GBP/AUD then you would be +70 on that trade. Therefore a total of +110 pips provided you do not take the spread on these trades into account. Please also note that pip value of all these pairs is not the same, but it still will give you a handsome profit. This arbitrage between pairs exists and offers opportunities to make decent profit with limited risk. I will suggest a book Forex Investing Dissected to you. A good read
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