Forex Currency Strength Trading

If you're a trader, I'm sure you're familiar with fundamental trading, technical trading, trend trading, candlestick trading, swing trading and all the other varieties of trading styles that riddle the markets these days. Each one professes to be "the way," but in reality, none of them really are.

The only constant I've found in trading any of the markets I trade, especially forex, is that strength is the only factor that drives prices especially in the short term. And since I am a short term trader, this is the only time frame I'm interested in. Strength is a direct indicator of supply vs. demand, and is therefore more of a fundamental indicator than a technical indicator.

However, for some bewildering reason, short term traders have chosen technical analysis as their method of choice. You've probably noticed that every charting website or charting software package includes a long list of technical indicators free of charge. I believe that the reason they're free is because you get what you pay for. These indicators are really good for nothing other than predicting the past.

So, what is strength and how do you determine what's strong and what's weak in the forex market at any given time? You may think that the Relative Strength Index (RSI) is a technical indicator that reflects strength. It's really not though.

By definition, the RSI is an indicator that tells us if a currency pair is overbought or oversold. However, just because a currency pair is oversold doesn't mean that the price of that pair is going to move up in the near future. Conversely, just because a currency pair is overbought does not mean its price will move downward in the near future.

The price of the currency pair may behave in this manner, but there is no fundamental reason for this to occur and is therefore not a dependable tool to use in making sound, profitable trading decisions. The reason that the price of a currency pair will move (in every instance) is when there is an imbalance in strength between the 2 individual currencies in the pair.

For instance, if the EUR and the USD are both strong with respect to all the other currencies they trade in pairs with, but there is no imbalance of strength between the EUR and the USD, the price of the EUR/USD pair will not tend to move regardless of the RSI reading at the time, and regardless of how overbought or oversold the pair may be.

So, essentially, the most important piece of information needed to successfully trade a currency pair is how strong each individual currency is compared to the other currencies it trades in pairs with. This information will allow us to match a strong currency with a weak currency, and thus select the best currency pair to trade at the time we are trading. There is no free conventional technical indicator I know of that delivers this information.

There is, however, a very unique tool that does deliver this information clearly, on one screen, and in real time. It's a currency meter that utilizes a real-time data feed to measure the buying and selling activity of each major currency tick-by-tick. A calculation is made using this input and the strength of each currency is displayed graphically on a chart where higher values on the vertical axis indicate strong buying activity for an individual currency, and lower values on the axis indicate strong selling activity.

At one glance, it is easy to match a strong currency with a weak currency using this tool. By looking for a trade in the currency pair identified by this method, you now have an extremely high probability of capturing a near term, predictable price move for a profitable trade. Another benefit of using this tool is that the real-time data feed that it requires is free.

Since I started using this currency meter and making trades based on the imbalance of strength between 2 currencies, both my winning percentage and trading profits have skyrocketed. Trading without this tool is like driving blindfolded and I can no longer trade confidently without it.

If you'd like more information about this unique tool that will enable you to use a unique strength trading approach to trade the forex market, please download and read the free eBook that have written by Chris Scelfo.

The eBook will thoroughly explain the strategy and contains screen shots of the meter in action as well as a profitable trading example made using this method.

Please download and read the free eBook using this link: http://www.forex-trend-trading.com/support-files/forexstrengthtrading.pdf

You'll need the Adobe Acrobat Reader to open the file. You can download the reader for free from the Adobe website.

Thanks and best of luck in your forex trading.

Using unique tools that allow you to "see" the strength of each individual currency with respect to the others in one screen, in real time, you can easily match a strong currency with a weak currency and make repeatable, profitable forex trades.

For Malaysia Trader you can get the tool from the author of Oasis Wealth Builders from their website or forum below. Actually i used oasis tool for my trading strategies and sometimes i used forexgrail or fx4caster tool. This tool must use with Metatrader platform by enabling DDE server in option setting. You also need to show all currency pair in market watch windows to avoid error reading of currency market by DDE server. Happy trading.

http://www.oasiswealthbuilders.com/

http://millionaire.forums-free.com/currency-meter-t44.html



More info for Bahasa explanation please visit this thread
http://www.carigold.com/portal/forums/showthread.php?t=92897

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The Value of Currencies, Base and Counter Currency

The Base Currency

One currency in a currency pair is always dominant, “only in the way it is quoted”. It is called the Base Currency. The base currency is identified as the first currency in a currency pair. It also is the currency that remains constant when determining a currency pair's price.

The Euro is the dominant base currency against all other global currencies. As a result, currency pairs against the EUR will be identified as EUR/USD, EUR/GBP, EUR/CHF, EUR/JPY, EUR/CAD, etc. All have the EUR acronym as the first in the sequence.

The British Pound is next in the hierarchy of currency name domination.
The major currency pairs versus the GBP would, therefore be identified as GBP/USD, GBP/CHF, GBP/JPY, GBP/CAD. Apart from the EUR/GBP, expect to see GBP as the first currency in a currency pair.

The USD is the next dominant base currency. USD/CAD, USD/JPY, USD/CHF would be the normal currency pair convention for the major currencies. Since the EUR and the GBP are more dominant in terms of base currencies, the dollar is quoted as EUR/USD and GBP/USD.

Knowing the base currency is important as it determines the values of currencies “notional or real” exchanged when a foreign exchange deal is transacted.

The Counter Currency

The Counter Currency is the second currency in a Currency Pair notation.
For example, the JPY is the Counter Currency in the USD/JPY pair. The USD becomes the counter currency in the EUR/USD pair.

The Value of Currencies

The base currency is always equal to one of the currency's monetary unit of exchange i.e., 1 Euro, 1 Pound, 1 Dollar etc.
When a trader buys 100,000 EUR/USD, he is said to be buying or receiving the EURO or the Base Currency and selling or paying for the USD or Counter Currency. The amount of the Base Currency he is buying is equal to 100,000 Euros.

Note that this is true no matter the current exchange rate at the time. The base currency amount remains constant.
The Counter Currency equivalent amount that the investor is selling (or paying), on the other hand, will fluctuate with the exchange rate for the Currency Pair.

It is equal to:

(Amount of Base Currency x Market Foreign Exchange Rate)

Since the Counter Currency is the part of the currency pair that fluctuates higher or lower, it indicates the relative strength or weakness of both currencies in a currency pair. As one currency goes up, the other must go down in relation to one another.

Question 1:

Given a Foreign Exchange rate for the EUR/USD Currency Pair of 1.2049, a trader who buys (or receives) 100,000 Euros would be selling (or paying) what equivalent amount of US dollars?

Question 2:

If a trader buys the EUR/USD at 1.2051 because he has identified a trading opportunity, and the value of the EUR/USD Currency Pair goes to 1.2095, did the trader make a profit or loss on the trade?

Question 1 - Answer:

Base Currency Amount = 100,000 Euros Foreign Exchange Rate = 1.2049
100,000 x 1.2049 = $120,490.00
The trader would be buying or receiving, 100,000 Euros and selling or paying, 120,490 US Dollars.

Question 2 - Answer:

The forex trader made a profit.

By buying the EUR/USD at 1.2051, the trader bought or received 100,000 Euros and sold or paid US$120,510. When the exchange rate rose to 1.2095, the trader could now sell the 100,000 Euros for US$120,950.

Since the trader initially paid or sold $120,510 for the Euros, the total profit on the transaction is equal to $120,950 (the amount now received or bought from selling the Euros at 1.2095) minus $120,510 (the price originally paid or sold).

Total Profit = $440

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Simple Forex Metatrader Template

I've currently got around 21 different forex templates loaded into my charting software but today I thought I would share with you one particular template that I've been working on recently. It uses a combination of moving averages in conjunction with one of my favourite indicators, the Supertrend indicator, and I think it could potentially be extremely profitable.

The components of this particular template are as follows:

- Exponential Moving Average (10) - blue
- Exponential Moving Average (21) - green
- Simple Moving Average (35) - red
- Exponential Moving Average (62) - pink
- Supertrend (1.5, 5)

It should look something like this:

As you can see, not only does the Supertrend indicator (with these shorter settings) track the price extremely closely, but you also get some very nice breakouts shorter after these moving averages converge together.

So if you combine the two you can get some excellent trading opportunities. For instance a good opportunity to open a long position would be when the moving averages are close together and the Supertrend has just turned green (and vice versa for a short position).

To take this one step further you can get real value from a trade when both these conditions are met, but the price then retraces back towards the Supertrend indicator. For example the moving averages are close together, the Supertrend indicator has turned green, the price initially rises and then falls to within 10 points of the Supertrend indicator.

A high probability position would be to go long, place your stop loss where the Supertrend indicator currently is, ie 10 points away in this case, and then close the position either at a pre-set target (much higher than the stop loss) or when the Supertrend subsequently turns red again.

Alternatively you could simply enter a position as soon as the candle closes and the change in Supertrend is confirmed if you want to jump on board early, or you could wait for a suitable fibonacci retracement before entering a position.

As I've already said, I haven't yet fully developed an exact trading system that uses this particular forex template but I definitely think it has a lot of potential and will be testing it out some more in the coming weeks.

In the meantime if you happen to develop your own profitable trading system based on this template, I would love to hear from you.

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