Forex Focus: Allied Currencies by Alexander Sabodin
When trading, who or what can be
Working in the financial markets
as a trader can be fascinating, considering it gives you the opportunity
to earn money and do so independently.
You can trade from anywhere in the world
with the help of a computer and the
Internet. But any medal has its reverse.
Such types of jobs come with their fair
share of risks. First of all, there is the
danger of losing money. Second, the responsibility
of making the buying and
selling decisions is entirely on your shoulders;
you canít depend on anybody else.
You are essentially on the battlefield alone
and fighting your enemies alone.
In any battle, you should have allies
that help you make the right decisions and keep you away
from making the wrong ones, or at least you hope that is the
case. When trading, who or what can be your ally? Believe
it or not, a tradable that is correlated with another in terms of
price movement can be.
In the foreign exchange market, the USD/CHF currency pair
is an ally to the EUR/USD pair. The economics of Switzerland
are closely connected with the economics of the countries of
the European zone, which is not surprising given that Switzerland
is located in the central part of Europe. In addition,
if you look at the charts of these currencies with respect to the
US dollar, they look like mirror-image twins.
Our tactics are relatively simple. If these two currency
pairs move synchronously and give confirming signals, we
consider it a strong signal and open a position. If we get a
signal from one currency pair and the second pair doesnít
provide a corresponding signal, we stay out of the market
until we get a confirmation. Thatís all there is to this system.
HEAD & SHOULDERS
Letís consider two neckline breakthrough signals on the EUR/
USD (Figure 1A) and USD/CHF (Figure 1B). The first breakthrough
is fake; it is marked by the number ď1.Ē In a situation
like this you could give into emotions and start selling EUR/
USD (pay attention to the long pin), but the USD/CHF told us
a different story. These conflicting signals kept us out of
placing a trade. In a few days, the USD/CHF breaks the
neckline. This is marked by the number ď2.Ē At this point, I
donít have complete confidence to open a position in the EUR/
USD since it lags behind the USD/CHF. If on the next trading
day the movement continues in the same direction, then I
would consider opening a position.