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Discussion in 'Forex' started by ElectricSavant, Feb 11, 2007.

  1. Here is some work I am interested in learning.

    Fascinating stuff...

    I just noticed under his contact info..he is a vendor...damn it..

    Here is some of his work:

    Introduction

    Over time, technical analysts have developed a wide range of methods and tools to help them in their work. These include trend lines, support and resistance levels, chart formations and mathematical indicators such as moving averages, MACD and stochastics. Other studies include Fibonacci projections, Elliot waves and Japanese candlesticks.

    For a currency trader, it is important to understand that, by and large, these methods and tools were developed for use in the stock market. The principal point to note here is that a stock is a financial instrument representing the price of a single underlying entity, and a change in a stock’s price reflects a change in the perceived value of the underlying entity. The same applies to commodities, bonds and most other types of investments. However, currencies are different. A currency rate represents the value of one currency in relation to another. As a result, a change in a currency rate can reflect a change in one, the other or both of the underlying currencies. This presents currency traders with an opportunity to add a powerful filtering method, known as relative-strength analysis, to their existing technical-analysis arsenal.


    Relative Strength Analysis

    To determine the relative strength of a currency, it is necessary to detect whether the currency is bullish or bearish against a basket of other currencies. If we discover that the currency is predominantly bullish against a basket of other currencies, we will have gained valuable knowledge about current market sentiment towards that currency. As speculators, we can apply this knowledge towards buying or selling the currency against any other individual currency.


    How to Select Trades Using Relative-Strength Analysis

    Let’s say you have done a relative-strength analysis on a basket of currencies and you have found that the GBP is rising in value with the greatest momentum. What can you do with this information? Clearly, if you are a trend follower, you will be looking to buy the GBP against another currency. But which one? To determine the ideal match, go back to your analysis and find out which currency among the basket of currencies is falling with the greatest momentum. Let’s say it is the JPY. Based on this relative-strength analysis, the trade with the highest potential to succeed would be a long GBPJPY. In going long the GBPJPY, you would be buying the GBP, which is the currency showing the most strength, and selling the JPY, which is the currency showing the most weakness.



    guess i will just need to find a platform (or language-specific, table scripting) to put all of the pairs in to separate them by single currency and then apply some "special, unique indicators to:)

    stay tuned EliteTraders...




    more...

    Determining the Best Trading Opportunities

    Using momentum data derived from relative-strength studies of a basket of currencies, it is possible to calculate an average “exchange rate” involving any two currency families and plot its rising and falling action on a graph. If the rate is rising, the odds favor a long trade in the pair. If the rate is falling, the odds favor a short trade. This is valuable information to have, but by digging deeper into the data we can learn even more. Let’s assume we are tracking the GBP vs. the JPY and the momentum exchange rate we have been calculating is rising. Here are the potential reasons why this could be occurring:


    1.GBP is rising;* JPY is falling.

    2.GBP is rising, JPY is holding steady

    3.GBP is rising, JPY is rising but slower than GBP

    4.GBP is holding steady, JPY is falling

    5.GBP is falling, JPY is falling but faster than GBP

    * The actions of rising, falling or holding steady refer to the currency family’s performance against a basket of currencies.

    Obviously, the combination with the greatest potential to generate a profit would the first: GBP is rising, JPY is falling. It goes without saying the trade direction would be long. This represents the ideal precondition for a trade since it involves one currency that is rising in momentum against a basket of currencies and another that is falling against the basket. The other combinations could also be traded, but from a relative-strength perspective, the degree of confidence in a positive outcome would be lower.



    Profiting from Divergence

    Imagine that a relative-strength analysis shows the GBP is gaining strength with increasing momentum against a basket of currencies while the JPY is falling in strength with increasing momentum. Looking at a price chart for the GBPJPY set to the same time frame as the analysis, you would notice that the trend has been bullish. However, what if the actual spot price is retracing against the trend? What should you do? According to our study, the trend would remain bullish as long as the GBP continued to strengthen against the currency basket and the JPY continued to weaken. This suggests the price retracement is only a correction, not a reversal, and could be used as an opportunity to open a long trade position.

    Choosing Entry and Stop Levels

    Relative-strength analysis does not by itself provide specific buy and sell signals. However, when used in combination with traditional technical analysis tools, it can give traders an edge in determining when to get in and out of a position. For instance, if a currency’s relative strength is bullish and the MACD is giving a buy signal, a long trade could be opened with a higher degree of confidence than if the MACD signal was the only basis for the decision. Conversely, if a currency’s relative strength is bearish and the MACD is giving a buy signal, the trader may wish to ignore the buy signal.
     
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