When something goes wrong during the trading day, you need to be prepared. One of the first things to backup is your internet connection. Make sure you have another way of accessing the internet when your regular Internet service provider goes out. This happens a lot more than you think once real money is on the line. The combination of your connection going out and having a trade in play at the time means you will have one of those" heart in the throat" moments. More
You pay a spread to get in and a spread to get out. You are making several deals when you trade currencies. Each step of the way, there are fees involved. As an example, if your trading account money is in anything other than US dollars, you pay to convert each time you do a deal. The currencies you take a position with have a lot to do with what country you are from. As a Canadian, I use Canadian dollars at the store. So, if I make X amount trading and withdraw from a US based account, then I have to pay the exchange rate which is sometimes equal to hundreds of pips lost during a cash out. The major banks here in Canada charge up to 4 cents on top of the official exchange rate for the US dollar. Your costs and gains have to take into consideration the real exchange rates. More
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Trading correctly with currency strength is cerebral and its difficult to teach people to use their heads.
Each trading day should start by opening and examining each individual currency. Mark spots where highs and lows have been reached over a variety of time periods. Thoroughly analyze each currency before going on to another. Now, you can match up the various combinations to find a strong or weak in a hurry and go back to studying each individual after. I suggest you use your home currency or trading account currency first, If one of the eight majors are your currency it only makes sense that you have to consider the implications when it all boils down to spending money on cashing out. . Since I am Canadian and my spending money is CAD, that's the currency I am most likely to try and deal with. I study the loonie up, down and sideways. What strength areas has it been hitting and retreating at? I would study the loonies past strength behavior patterns and then try to find a mirror like currency to trade with. Since this is all intraday, i don't care about what's going to happen tomorrow or five hours after my trade. Its kind of a different world intraday. We are not trading daily stocks or commodities.
Fact : Intraday currency strength moves from low to high continuously.
The highs and lows will vary, but a single currency, as measured against the performance of its peers, will always follow sine wave characteristics intraday.
It will always move from strength to weakness and back again like an oscillator. In the last six years of recording currency patterns intraday, there has never been a single instance of any currency weakening and staying that way more than a day. They are continually going from + to - all day long. I remember the Yen having a hard time for a day or two several months back, but, as always, it bounced up to strength. They all follow the sine wave pattern.
The sine wave or sinusoid is a mathematical function that describes a smooth repetitive oscillation ( WiKi)
Unlike price measuring charts, currency strength charts have limits. The numbers from one to ten is representing relational strength and rate of change from a base of "0". Ten is the highest and zero is the lowest. Yes, it is possible to exceed those parameters but it signals complete chaos and the line just rests at the extreme. I have seen it happen twice this year.
The essence of what we do as traders in the foreign exchange is displayed on a currency strength chart.
The AccuStrength formula tells the software to dissect dozens of pairs and look at the changes taking place among the eight majors. It shows us how one particular currency is measuring up against the others. A simple currency strength formula captures single currency performance and displays it.
Currency strength is not determined by looking at one pair. If we superimpose all the available pair combinations that contain a particular currency, and measure the rates of change among them, (not the price changes), and direction at which they are moving, it gives us the strength of an individual. If we are looking at the CAD for example, we look at the other seven currencies and observe how they are doing in their interactions with CAD. This is how you measure strength. The formula isn't difficult. The speed at which the calculations are made is the crucial for intraday trading. The results have to be plotted on a graph. (Many moons ago I started out with a tick type meter but I needed to mark out time intervals and strengths on a piece of graph paper kept on my desk. That was a lot of work. Errors were inevitable.)
Here are some of the characteristics of a currency strength wave that I have observed.
First: A currency strength approaching a new high or low point is a signal.
It is clearly not the time to get into a buy on the currency that's showing strength or a sell for the currency showing weakness. They may have peaked or hit bottom and you are usually too late to get into something with the currency that has been up high. Intraday currency strength repeats itself over and over again. If it hasn't gone much lower or higher than where its at in the past few days, its not hard to guess that it will reverse. Currencies follow a sine wave pattern alternating from strength to weakness.
Second: A currency strength never likes to be neutral against another. It always reacts faster immediately after the cross.
When any two currencies approach the same strength,( eg. cross) they do one of two things. Either it bounces away from the area of neutrality or it will pass through quickly. This is why a currency strength cross is so powerful. At the point where two currencies meet, there is usually a violent reaction. Its almost like a magnets response when it comes into another magnet of the same polarity. The sine wave polarity of one, matches the other for a moment. This crossing is seen all the time and each crossing results in a reaction.
More to come......
All of this only applies if you are keeping up with the news events surrounding the various currencies. Go to the online versions of all the professional and mostly free services out there. Find as many good sources of information that may affect your prospective purchases. You don't want to buy the CAD if its Oil and Gold production is down or something bad happens. The CAD is a commodity currency. Same with the AUD,. That means our money fluctuates with commodities like gold, oil and agriculture. You need to get to know the various behaviors and patterns that each one of the eight currencies. Here is my personal starting page of bookmarks. You are welcome to use it.
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Listing of Tom Yeomans books from the past
Serious trader links... Economic Bookmarks
Individual Currency Measurements.
With the addition of trend lines, easy time adjustments, and alarm management, the AccuStrength 4 will become a full fledged currency strength charting platform. In fact, its the first Charting Platform that caters exclusively to foreign exchange instruments. Futures, Options, and Stock traders all require knowledge of individual currency strengths. With Forex traders, its an essential tool. Click here to see the New AccuStrength
The AccuStrength Charts individual currency strength.
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Tools like the currency strength charting provides crucial information for making Foreign Exchange decisions.