This is a guest post by Forex FX 4X
The major Forex pairs often move in harmony with each other as we all know. GBP/USD may be moving higher while USD/CHF moves lower. This is obviously related to the dollar as the common denominator in this particular scenario. Currency correlations can be very useful when conducting our analysis.
Do you keep track of these relationships when you trade? If you don’t then maybe you should. Why not start by looking at the dollar index. Today gave an excellent example of how cross currency analysis can be used when trading the Forex. The dollar index broke through strong support and the EUR/USD and USD/CHF pairs followed the move and broke through their respective recent ranges. However, the GBP/USD pair did not, it was slow to respond as the GBP/USD bulls held back.
Observant traders knew at this time that the dollar was weak in the near term and may have chosen to sell the dollar against the pound and therefore go long GBP/USD at these range highs. They would have been rewarded for doing so, as it happens, on this occasion. It’s not a case of simply opening trades at random when you see this phenomenon but maybe continue with your currency strategy and make a note of whether using this information, as a filter, could have been of benefit to you – would it help your bottom line. Sometimes it can keep you out of bad trades as well. You may be considering a short on the pound but the euro is not going though support. This can be valuable information if used wisely.
New traders often neglect to look at the markets like this and may benefit from doing so. maybe open a demo account and stat trading with paper money while using cross currency analysis. Never risk your real money on anything you read on the internet but demo trading is useful for research and development. I hope this post has been of interest to you and maybe helped you look at e markets in a slightly different way.