Hey I thought I'd start this thread to show you a new way to trade Forex. Now, this is all a revelation to me because I come from an "ex control freak" background and short term trading perspective. But, having put a year or so into this Currency Strength facility "on steroids", I have completely changed my view on trading Forex. You have all seen and probably used various Currency Meters. In my view, these are little Toys which are cute, like many other "indicators" but which are really useless when it comes to making you consistent Money. Last time I checked it was consistent profitability which separates the Pros from the Wannabees So I created yet another Currency Strength facility, which is a lot more than just a "Currency Meter". Let me go through the goals I had, and why I think this is now a facility which is more than a Toy, and which can help us to make big money consistently. By this I mean, reliably identify the 30, 50, 100, 150 PIP trades and rarely get us into much price adversity trouble. DATA STABILITY OVER TIME Most Currency Meters use internal calculations which are based upon yesterday's range for each of the Currency Pairs underlying the strength estimates. Thus, readings from one day to the next may not be comparable. I decided to make sure that the prior reference was not just a day, but several weeks of stable prior data. The goal is to make Currency Strengths from today comparable to yesterday's and those from this week to be comparable to those in the past week or two. Why? CURRENCY TREND ANALYSIS ABILITY Most of us as traders are "married" to one or a few Currency Pairs in which we hope to become "experts" and therefore make money. So we do "chart analysis" on that Currency Pair, using support and resistance, or bollingers, or rsi or any of dozens of other Price Based indicators in the hopes that we can figure out where it's going to go for our next trade. Note: Every trader in the world sees Currency Pair prices so, of course, these are made deceptive. But almost no trader is able to see the underlying Currency Strengths presented in a way which allow for high probability Currency Pair trade identification. Almost all of our "indicators" are simply another way to look at Currency Pair price action, and very little that may lie "behind" those movements as fundamental factors. So Currency Strength Trend analysis allow us to "pull back the curtain" and see some deeper information. Well, since Currency Pairs are driven like "exchange rates" from underlying Currency Strengths, most methods of Price Action Analysis is really looking at the Effect, rather than looking at a fundamental Cause of Currency Pair movements. Chart readers would disagree, I suppose but that's why this is such an interesting and controversial topic. IMAGINE A BETTER WAY TO CHOOSE TRADES If we could know the underlying Currency relative strengths, then "theoretically" we could predict where Currency Pairs should be, by just looking at a ratio of any 2 Currency Strengths. (It's a little more complex than that, but this is the primary driver of movements in exchange rates, or in other words Currency Pair prices as fractions, or ratios of an underlying Currency strength entity.) The solution is to keep Currency Strength Charts and to do Trend Analysis on *Currency Strength* movements, rather than trend analysis on Currency Pair movements which is what 99% of Forex traders do every day. CURRENCY TREND ANALYSIS So in our new way of thinking, we won't any longer primarily use Currency Pair (Chart) trend analysis, but will watch for Currency Strengths themselves, and their charted trending over time. HIGH PROBABILITY TRADES Well, the simplest way of choosing trades is to Buy the Weakest Currency against Selling the Strongest one. So if A is the Weakest, and B is the Strongest, then we Bid to go Long in the A/B Currency Pair. Why? Because A is already weak, and not so likely to go much weaker; and B is strong but not so likely to get much stronger. Rather there is a higher probability that either or both of A and B (assuming they exceed some threshold strength and weakness level) will "revert to the mean" strength, and therefore, that A will become less weak (or strengthen), and that B may become less strong (or weaken). And, of course, if the A/B pair does not exist for the Long trade, but the B/A pair does exist; then we go SHORT the B/A pair for exactly the same reason. BUT WHAT ABOUT CONTINUATION IN STRENGTH? Now, whenever you get trading "tips" or "signals" from Currency Strength guys, notice that they are always going for the continuation or "with trend" trades. Why am I saying that we want to "fade" the strengths, and therefore take a "counter trend trade" in the Currency Pair? How can that be a good way to trade? Isn't that swimming against the trend? Well, the conventional wisdom says "Yes, it is not wise to take such a bet on a reversal." BUT WHEN CAN REVERSALS OR PIVOTS BE JUSTIFIED? Here we have to dive a bit deeper into the idea of Currency Trend Analysis (note: not Currency Pair trend analysis), which identifies Trends in *Currency Strengths* themselves. And here's where a bit of "conspiracy theory" makes its appearance. We actually *assume* that Markets are manipulated, and that prior to Major Events, or News Events in Currencies, that Market Manipulators actually position CURRENCY Strengths in the OPPOSITE direction of their intended move AFTER the news is announced. MARKET MANIPULATION AND HOW TO SEE IT Many News Events or regular Daily Events are known to most traders published well in advance. These are the times when Forex markets move the most, even if there is just "Non News" like the FOMC deciding to do nothing, as everyone expected, but Markets use these "non news" events as an "excuse" to shake up the markets and make a little money off the Retail trader population. Yes, it's true that Forex Market movements are "engineered" in advanced by powerful entities, SO GET USED TO IT !! In fact we may well be able to turn deception to our advantage ! In fact, we welcome these market manipulations, because we can SEE their "setups" in Currency Strength trending many times, just ahead of the events. Therefore, we can "fade" their "setups" and confidently trade in the right direction. CURRENCY STRENGTH TRENDING CHOOSES PAIRS Rather than to be "married to" one or just a few Currency Pairs, by using Currency Trend Analysis, we are able to take advantage of the "market scanner" feature, where pairs of Currency Strengths lead us to the highest probability Currency Pair choices, and also tell us on which side of the market (long or short) we should place our trade. So the confusing aspect of "which pair should I trade" is somewhat simplified. SUSPICIOUS MOVEMENTS OF CURRENCY STRENGTHS Using this approach, not only are we looking for Extreme Currency Strengths to "fade" as one strategy; but we are also looking for "suspicious" movements in any Currency which gives us a clue as to a "setup" for a trade. Here I use the term "hook" to illustrate what we are looking for. If Currency A has been moving for hours in a flat line, and then it is moved (hooked) upwards, this is most likely so that an upcoming event will be used to move it in the OPPOSITE direction of the "hook". Moveover if we can find A hooking upwards, and another Currency B which is hooking downwards, assuming these are "fake" or "engineered" movements, then we can "fade" both A against B and get a "slingshot" movement of the Currency Pair A/B or the Currency Pair B/A, whichever happens to be available. This is where we find the really big movements of 100 PIPs or more on occasion. FEATURE AND TREND ANALYSIS So we may be able to come up with a reply to the guy who says, "Why not assume a strong currency will continue to strengthen, and a weak currency will continue to weaken; and therefore take trades in Currency Pairs which are in trend direction." If we are able to differentiate between a continuation trend in a Currency itself, versus a setup for reversal in a Currency trend, then clearly we could do EITHER with trend or counter trend trades using this approach. I think "feature analysis" is able to differentiate the "hooks" (which should be faded) and the slow straight line trends (which perhaps should be expected to continue) from the same Currency Trend charts. Well, that's a lot of stuff which should provoke some discussion but let me summarize. Unless you are really measuring underlying Currency Strengths, and can also compare them meaningfully from moment to moment, then you are lost, so you are "guessing" and so you cannot be consistently successful as a trader. BUT... with reliable Currency Strength Trend Analysis, then trading becomes EASY. We are always choosing what appear to be High Probability positions in Currency Pairs, because we have some (albeit perhaps imperfect, but tradable) knowledge of the underlying drivers of Currency Pair movements, which are the Currency Strength relationships themselves. Then all that is left for the trader is execution, methodology, timing and other techniques because the primary criteria for selecting trades, Currency Strength Trend Analysis, removes much uncertainty from profitable trading. I no longer have to be "micro managing short term control freak" requiring long hours at the terminal, because I have reliable information in which I can progressively place more faith that I'm able to choose successful high probability trades in Forex, consistently and with high confidence. HyperScalper
Yeah, if someone wants to buy the rights, they can license it... And probably a Bot could implement a reasonably successful strategy but, near future I'm planning to use trader interpretation as the primary basis for entry. I was also considering a micro scalper which was able to sell "Over Bought" and "Over Sold"' Currency Pairs, which is another thing that fell out of the R&D along the way. What I found was that Currency Pairs are "distorted" in their price away from what their "true value" should be. This is not some moving average B.S. but actually factoring out the Currency Pair's actual index against its predicted index. Then the idea is to scalp and sell those which are "too high" and buy those which are "too low" for a few pips. That drags me back into short term trading, so I think I won't do that Bot... HyperScalper
reversion to the mean, it's nothing new, spread traders have been trying to do it since the beginning of time....only problem is, the mean keeps changing
Sure, the idea of reversion to the mean or "middle of the pack" is not anything new, but I don't think I said it was new. I was applying the idea to the Currency Strength indices, where it probably isn't used that much in practice. When there's a multi-week history of Currency Strengths, then there's a known "range" of values observed in the past, so extremes are more easily evaluated. HyperScalper.
plenty of fx dealers willing to market the next wiz-bang wiglet to their clients .... get a good lawyer tho.....
A VIDEO explanation of how Thinking in Currency and usage of realtime Currency Trend Analytics supports sound decisions, with or without knowledge of the news events. The example is today's 350 PIP upward move in EUR/USD due to ECB's decision to continue quantitative easing and support of negative interest rates in EUR Currency. I did not take this trade myself, or I would be retired on EUR/USD +350 PIPs ! You can gain access to this facility and the methodology behind its successful deployment for profitable trading. HyperScalper
I am a reformed ex-vendor with my own trading operation, but that doesn't mean I don't offer occasional ideas and consultancy to interested persons. But I learned long ago that Forex as a market is very money poor indeed. It seems all the money is in the Stocks, Futures, and Options people who are, like me, "Baby Boomer" generation and bored, with lots of money to play with !! So I'm not a vendor any more... HyperScalper EDIT: I started myself thinking "How ironic that such a lucrative market as Forex trading, has players who are so underfunded for serious trading." In my view, Forex is an ideal market to make money.
If you charge for the Consultancy, you are a vendor, so let's not pretend otherwise. If you are doing it for free, say so and you will soon be one of the most popular members on ET.