Price Action Trading – Strong vs. Weak
Trading Forex is in many aspects the same as trading any other instruments. However, there is one crucial way in which trading Forex is completely different than trading other markets. When you are trading any other instrument, you are trading a single instrument based upon its individual strength or weakness. However, in Forex you are trading two instruments or currencies which have their own individual strengths and weaknesses. Thus, the equation is a little more complex but actually makes it easier to find trading opportunities. Why? Because when we are trading currencies, we simply are looking for the greatest polarity between the strongest and weakest currencies. By trading a strong currency against a weak one, we greatly increase the chances the pair will move in our direction as long as we are buying the strong currency and selling the weak one. If you can analyze the price action and isolate the strong vs. weak performing currencies, then you can find some great price action trading setups. How to Find Strong vs. Weak Currencies? The method is actually quite simple. Since the USD is the most commonly traded currency (either as major or cross) we can see how individual currencies are performing against the greenback. Example #1 EUR vs. AUD If we look at the two charts below, we are seeing the daily charts of the Euro vs. the USD and the AUD vs. the USD. We can see how the EURUSD has been tumbling opening the year at 1.4330 and is currently sitting at 1.2300 shedding over 2000pips. Contrast this with the AUDUSD which opened the year just under .9000 and has ranged currently only being down 300pips. 300 vs. 2000. Who is going to win this battle? The AUD will over the EUR. Thus, how does this lead to a trading opportunity for us? By buying the strong pair vs. the weak pair, or selling EURAUD. What does that chart look like? See below. The EURAUD opened the year at 1.6000 and is currently sitting at 1.4130, shaving off 1870pips. Thus, trading does not always have to be complicated requiring lots of indicators to find good trades. By understanding how to read price action, determine impulsive vs. corrective moves and spot good formations, you can find great trading opportunities. If you are serious about learning how to trade this market successfully, and find simple high-probability trades using pivots and price action only, you can check out the Advanced Price Action or the ProForex Course which will teach you rule-based proprietary price action strategies and systems to trade these profitable setups.
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