Learn Forex – Pairing Strength with Weakness when Trading Forex
Learn Forex (FXpath.com) – The forex market is unique in many ways, not least of which is the fact that all currencies are traded in pairs. Perhaps more than any other aspect of forex trading, this pairing attribute differentiates this financial market dramatically from any other major financial trading market.What is one of the primary advantages of this pairing characteristic? Very importantly, it allows traders not only to buy strength and sell weakness as in other trading markets, but to buy exceptional strength while SIMULTANEOUSLY selling exceptional weakness. This creates a situation in which the extremes of strength and weakness in currencies can be identified and then paired to increase the odds of choosing the correct directional bias and taking advantage of strong trends in the currency markets.
Identification of strength and weakness in currencies can be approached primarily from two different perspectives – technical and fundamental. From a technical perspective, each currency can be compared to a standard basket of currencies to determine recent trend performance. The currency that compares most favorably in terms of price against this basket, within a given past time period, can be deemed the strongest. The currency that compares least favorably in terms of price against this basket, within a given past time period, can be deemed the weakest. These two currencies, strongest and weakest, may then be paired to create potential trend-trading opportunities (i.e., long the strong while simultaneously short the weak).
This approach to trading forex can be used on any timeframe, as trends tend to occur often on all timeframes in the forex market. Trading forex in this fashion allows forex traders both to exploit strong trends in currencies as well as to take advantage of one of the key defining characteristics, and advantages, of forex trading – instrument pairing.
James Chen, CTA, CMT (bio)
- Click here for my book, Essentials of Foreign Exchange Trading (Wiley).
- Click here for my book, Essentials of Technical Analysis for Financial Markets (Wiley).
- Click here for my video DVD set, High-Probability Trend Following in the Forex Market (FXstreet).
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Good concept. Try looking at Topgun software which has a huge emphasis in defining the stongest and weakest forex pairs and good tools to do so. I am only a user and have no other interst in the software