How To Find Currency Strength In Forex!
Strength in currencies
Strength between currency pairs happens all the time and if you know how to, you can take advantage of them to make some profit.
Of course, you are. What does strength mean? Strength simply means that one or more currencies are behaving in a certain way. For example, the Japanese Yen is very strong it is moving and people are buying the Yen. Now if we want to know how strong the Japanese Yen actually is then we look at all the major Yen currency pairs.
AUD/JPY CAD/JPY CHF/JPY EUR/JPY GBP/JPY NZD/JPY USD/JPY
Some people dismiss the Swiss Franc (CHF) as a minor currency but I always put it in there for calculating the weakness of the currencies.
As you can see with the EUR pairs the Euro is weak. Now how can we take advantage of this weakness? We need to find a currency that is strong.
As you can see the Canadian Dollar (CAD) Is very strong!
WAIT! Don’t put your trade on yet! Where are we getting in and where are we getting out?
Entrance and Exit strategy
Let’s look at the EUR/CAD more closely. where exactly are we going to enter this trade? And where are we going to exit?
How do we know if this trade is going to be a winner?
Well, of course, we don’t know 100% if it will be a winner or not. But there are some things we can do to make sure it has a good chance of doing well. We do not put in a market trade, we use a Sell Stop, if you don’t know what a Sell Stop then takes a few minutes to use your favourite search engine or go onto your trading broker’s site and find out how to use one.
1Hr Time Frame
This is a very simple method. The Sell Stop goes just below the green line and your Stop Loss goes just above the red line. Again if you don’t know how to set a Stop Loss I suggest you find out. Trading without a Stop Loss is very dangerous to your account!
1Day Time Frame
Remember to check a higher time frame in case of strong support or resistance. As you can see from the chart below it has already hit support that is why our entry is below that green line!
The exit or Take Profit is at the orange line. My risk to reward is about 40% my profit will be 1/1.4 which is although not ideal I prefer 1/1.5 to 1/3 usually, it isn’t so bad. A warning here of what I call stretching profits, don’t try to stretch to your number as it probably won’t get there.
You can see it hasn't hit the entry as of yet. Luckily we enter at market or we would be at a loss now!
That is the best thing about using orders. You are not in the trade when it goes against you! You are waiting for the instrument to come to your entry point rather than hoping it will drop below your market price!
Thanks for reading