Build Your Trading Plan Around the Strongest Currencies

Focus: FOREX

There is a very simple formula for identifying the strongest and weakest currencies, writes Tyler Yell of DailyFX.com. Once you've done that you can follow a checklist for finding favorable entries in the direction of the predominant trend.

Trading in favor of the strongest currency and selling the weakest is the bread-and-butter trade for trend followers and swing traders alike. The only difference is that trend traders hold the trades for much longer and swing traders often have defined risk:reward entries. Trend followers purposely trade these currency mismatches because they tend to trend longer than many people expect.

To help you visualize what a strong-weak match-up looks on a chart, here is a trend at the hands of a notable strong currency unevenly trading against the weakest currency.

CAD/JPY Houses the Strongest and Weakest Currencies to Trend Traders' Delight

chart
(Created using FXCM's Marketscope 2.0 charts)
Click to Enlarge

To see for yourself what the current strongest and weakest currency pairs are, you need to perform a strong and weak analysis. Once you've done that, you can add fractals and the CCI to your chart to find entries or look for breakouts.

Strong-Weak Analysis Breakdown
Place a large moving average on a major currency pair, preferably on an hourly chart or larger.

 
Clicky