If you can understand the currency strength at that moment from the indicator, you should trade using the strong currency and the weak currency pair at that time
If you take into account the relative strength of each currency at that time, wouldn’t the edge be even greater?
You’ve probably thought something like that, right?
How important is the "currency pair selection"?
In simple terms, the reasoning is this.
When trading,
there are times when suddenly a particular currency is sold or bought and moves in one direction.
Not due to economic indicators or anything; you don’t know the reason.
It may be information that couldn’t be grasped in advance.
Anyway, for example,
even with analysis by methods or discretionary theories
in a scenario of long USD/JPY,
if for some reason the dollar starts to be sold,
all USD/major currency pairs move in the direction of dollar selling.
The method or theory becomes irrelevant..
So wouldn't you just position in that direction?
Yes, that’s right.
However,
we don’t know how long that direction will last.
When you think, “Oh! The dollar is being sold! Let me short USD/JPY!”
by the time you think so, the dollar selling is near its end, and once you hold a position, the price movement changes immediately.
That can happen.
If you determine which currencies are being bought and sold at that moment and
trade accordingly, wouldn’t that be advantageous?
But if your judgment is lagging behind, there’s nothing you can do.
There are indicators that are good for judging currency strength and weakness.
It’s an indicator called the CCFp.
With CCFp, I think it’s good to select a pair of currencies that are strong and weak at that time.
However, there are two problems.
Spreads differ quite a bit depending on the currency pair.
It’s not that you can use any currency pair indiscriminately.
Another thing is.
How accurately can you judge the currency strength at that moment?
That depends on your own ability to discern.
Whether you’re able to grasp it in real time or it’s a lagged judgment.
If your judgments are accurate, the probability of winning should be high
in theory.
But even for numeric judgments, how should you judge them?
Creating a standard for judging currency strength at that moment is quite difficult.
However,
in the EHMtrade method, although it does not incorporate overall strength judgments from multiple currencies,
we do incorporate “volatility of the currency pair being watched.”
How strong or weak the pair is?
Is it in a state with no strength or no movement?
That becomes the criterion we adopt.
Because we judge currency pairs, two currencies, we use a different indicator’s numbers rather than CCFp.
The idea is to look at how much strength/weakness exists between two currencies.
As we start to consider this, it seems like discussions could drift toward arbitrage or divergence rates, but
Let’s leave it here for today.
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