Pipsqueaks #6: Strong vs Weak when Day Trading

Occasionally, people send me questions on the subject of currency market analysis, what strategies I use, what times do I trade, or what currencies do I like to trade. Let me see if I can address some of these questions. In reverse order I suppose GBP/USD is a favorite currency pair of mine, and I like to trade the London open, and strategies like “Follow the Trend” as well as “Ice Cream Sandwich” all equate to favorites, and, as far as analysis goes, we do need to distinguish between fundamental analysis and technical analysis. My definition of a fundamental analysis – all the data that a trader ignores until they need to do a technical analysis. A technical analysis is an explanation of what went wrong with your last trade. Although I do confess that I don’t always know at the start of the day which pairs and what strategies I choose to pursue; that’s something I need to evaluate each trading day – starting with which currency pairs should receive the lion share of my attention. Enter a strong versus weak analysis.


A few weeks back I discussed one of my favorite EA’s “The Casino”; it has built in a number of conveniences, among them a graph showing relative strengths/weaknesses of different currencies. The idea being that we can give ourselves an edge by matching up a strong currency with a weak one and, if we match the direction of the potential move in the direction of the trend on a daily chart we can give ourselves an edge. One of the brokers I use is Oanda and on their website they feature currency strength heatmap table. This is convenient, but for the purpose of this article, I wanted to discuss how a new trader can make this assessment on his or her own. Doing this manually can be tedious, but for a new trader it’s a good exercise to become more familiar with charts and reading them.

eurusd forex strategy

So here’s how it works: open up a four hour chart with a 200 SMA (Simple Moving Average). Make a list of the currencies you wish to work with that day. Back to the chart and start with a currency from your list. Let’s begin with my favorite, GBP/USD. If it’s trading above the 200 SMA that means that the GBP is stronger than the USD at that point in time. So let’s give an up arrow to GBP, and a down arrow for USD. Now go to the next currency pair, say EUR/USD. If the price is above the 200 SMA, then give an up arrow for the EUR and another down arrow for the USD. Continue this scrub throughout all the currency pairs that you wish to look at that day, and add up the up arrows and down arrows for each currency. Let’s say, after you finished looking at the charts, that the GBP has five up arrows and two down arrows and the USD has one up arrow and four down arrows. In this example the GBP is trending stronger than the USD. What you are looking for in this exercise is to match the strongest to the weakest, then look at the chart for the strongest (most up arrows) versus weakest pair (most down arrows), and look for indicators suggesting price movement in the direction of the trend (i.e., a break in support and resistance, analysis using a favorite strategy, etc.). Let’s say in my example that GBP was rated strongest while USD was rated weakest. In this case we would be looking for a strong uptrend or long position trade. Conversely a weak currency paired against a strong currency would be a candidate for short position, say if the USD is weak and the JPY is strong, then that would suggest a short position possibility on USD/JPY. By starting off making this technical analysis we can start our trading day bit more confident knowing the probable direction of a coming move. There,  that was easy!


Regarding the strategies that I mentioned earlier, and yes I guess they are favorites, but I also have a passion for experimentation, and trying new things, whether it’s the idea of a fellow trader or something I’m tinkering with on my own. I had opportunity to stumble my way through a myriad of different strategies with various and interesting results. A stumbling block for me in trying to figure out a strategy is dealing with one that’s couched in language such as “simple” with a host of exotic indicators (see below) and comes with a instructive tidbit that says “… and you can see clearly that the EUR/USD is about to break out to the upside.” Yeah right…clear as mud. Still I’ll try anything once, although for me personally, the fewer indicators the better, and no indicators best of all!


Of course the better question that no one asks me (but I’ll answer anyway) is what kind of a trader I am. Am I a scalper? A swing trader? A position trader? The answer is…all of the above. I admit I cut my teeth scalping in Forex, but today I’ll embrace whatever opportunity the market brings my way. I do like the longer term trades more and more; which means more free time and a lot less stress, and after all, isn’t that what trading is all about? Each niche in Forex trading will attract different types of people. Do you make assessments quickly and decisively? Scalping may be your forte. Do you take a long time to decide on things after careful and thoughtful analysis? Maybe swing or position trading might be more suitable for you. But regardless of the individual style or preference, it’s always good in this business to be flexible. The market has an interesting (and apparently infinite) ability to humble those who are somewhat rigid and inflexible in their trading habits. One thing we all have in common is we all have stories of how “the market” gave us a lickkin’ and kept on tickkin’.


Of course a good way to minimize being humbled (and yes, it will happen to us all eventually, just goes with the territory) is to be focused on continued learning of the trading business and being disciplined, non-emotional, and most of all, patient. That’s where groups like Slick Trade play an important role. Access to educational materials, strategies, signals, and the help and support of other traders, both new and experienced all designed to assist in the growth of a novice Forex trader into a real pro. One of the best bits of advice I was ever given was the idea that until I learned how to read charts and place my own trades I could only be a follower, not a trader. It was good advice that I took to heart, and helped me with my trading career to evolve from someone who couldn’t distinguish a pin bar from a hammer to being able to make my own trades and even devise my own strategies. So if you’re new to Forex or just want to learn more about trading or take your trading experience to the next level, why not join slick trade? You’ll be glad you did (I know I am).


All that’s all for now… next time out I’m going to go into an in-depth discussion on the subject of risky business. Until then have a great week and, as always, thanks for reading.




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