What are your thoughts on “strength versus weakness” when it comes to trading currencies (after all, when we trade currency pairs we are trading the spread between two individual currencies)? I have several programs/indicators that track this…either longer term or intraday….Have you thought of incorporating strength and weakness of the individual currencies (and whether that strength or weakness will continue, or to fade it, or do nothing)….in with your order flow concepts? Do you think it has merit in conjunction with OF principles?
Here are a couple of screenshots….
This one above is based on the last 60 minutes but I can set it to whatever I want…even to the start of the day or session (like start of the European session, start of the North America session, etc.).
This is measuring rates of changes of the various currencies amongst themselves and charting it….all intraday.
I think it is important to know which currencies are strong for the day, and which are weak for the day, and to identify the reasons why they can be so, so you can figure out if you should go with the move, fade it, or do nothing and wait. It can make or break a trade at some points in the currency market because if you want to go short the EUR for instance, well you have to choose which currency to go long of as well. And if you choose the wrong one, your profits can be less than expected, or even suffer losses. Take for example the EUR this past Friday on January 17. If you shorted EUR/USD or EUR/JPY you did well. But if you shorted the EUR by going long AUD or CHF ( by shorting EUR/AUD or EUR/CHF), then it wasn’t a good trade. So it is important to know which currencies have rallied or sold off over the past day or so and past week, etc. But of course it is also more about anticipating the future.
One of my strengths is also a bit of weakness. My strength is interpreting information flow and I have desired to go down that path as I can consume information from a lot of different sources and directions and figure out what to do with it. But that also led me to be a bit skeptical of those programs with all those crazy squiggly lines, etc. Especially after my horrifying experience with technical indicators, etc and how I struggled to purge myself of those things in order to attain the order flow and macro mindset and make the needed breakthroughs.
I have tried on and off those programs that show all the currency pairs strength vs weakness, etc. I just couldn’t make sense of it and figure out how it could help me. To be fair, I probably didn’t give it as good a chance as I should. So I liked technology and my charts and all, but I haven’t figured out how to incorporate those “currency strength meters”, etc.
Whatever the currency strength meter does, I do manually by looking at the charts quickly and/or seeing the percentage change of each currency pair, etc, and by inputting them into my correlation/sensitivity sheet. That is the manual method I use, and I can understand some people want a much faster way, and this is where your programs/indicators come into play in the screenshots posted below!!! Seeing the shifting strengths and weaknesses on an intraday basis between different currency pairs and even other markets like S&P, Crude, etc, can be very valuable to find intraday divergences and potential trade setups!
I will probably adopt some sort of these more automated approaches as time goes on. But for the recent past, I did it all manually and focused on attaining an interpretation advantage and knowing how to handle all the information flow, scenarios, etc. That gave me the amazing foundation to go wherever I wanted to go. I knew if I could master the macro trading and information flow, expectations, scenarios, etc, I could go wherever I wanted to go. Any technological bonuses that enhance productivity and speed, etc, they are icing on the cake!
So I would say the general principle is:
Order Flow + Information Flow + Interpretation advantage + Scenarios, Expectations, etc = Great! And if you can automate some of them and use technology, etc, then even better!!