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Spot Forex Trading Part 3: Parallel And Inverse Analysis By Mark Mc Donnell This article is Part 3 of a series of 9 articles dedicated to help anyone to trade the foreign exchange.
Very few spot traders conduct any form of parallel and inverse analysis of the major pairs and exotics to determine the best way to trade the on a day-to-day basis. Even though it would be nearly impossible to trade the successfully not knowing where the overall strength and weakness was in the spot across multiple pairs.
Lets look at some examples. Many people like to trade the GBP/USD they spend countless hours losing sleep waiting to trade this pair even when no trend or parallel/inverse confirmation is available. Losses occur. They could increase their odds dramatically by setting up some entry rules and examples like the ones shown below.
Only buy the GBP/USD if the GBP/CHF and GBP/JPY are strengthening as well. This would be parallel confirmation on the GBP strengthening across the board.
Only buy the GBP/USD if the EUR/USD is strengthening and the USD/CHF is weakening. This would be confirming the entry with two other pairs and across the board weakness in the USD. In either situation you have confirmed the entry with at least two other pairs. Both of these entry rules would include a stop order, and you can enhance the rules further by examining the EUR/GBP for weakness. This is inverse confirmation.
But this is not what traders do. They want to trade the GBP/USD so badly that they manufacture a trade, or the they want to use indicators, or trade the news. This is a mistake and is equivalent to betting or gambling. There is no logic to support the entry, the works in a logical way. Lets look at some other examples. Lets say you prefer to hold carry trades and prefer to trade the GBP/JPY, you could set up rules for entry as follows:
Only buy the GBP/JPY if the GBP is strong across the board based on parallel and inverse pairs, or only enter the GBP/JPY if the GBP/USD and USD/JPY are both strengthening somewhat or a lot. In the second scenario the GBP/JPY will slingshot upward at a very fast pace.
Or another scenario is to only buy the GBP/JPY if the EUR/JPY, CHF/JPY and AUD/JPY are all strengthening as well, in this case the USD is not in the picture because of across the board weakness in the JPY. Either way you have confirmed the entry with other pairs.
Another example would be to buy the USD/CAD only if the EUR/CAD and AUD/CAD are also strengthening.
Similar rules can be applied to any major or exotic pair and easily monitored
upon entry. In the case of the three CAD pairs, if you also do a careful analysis of support and resistance, you can trade the pair with the most potential rather than just trading the USD/CAD.
But this is not what traders do, they get stuck trading the same pair and wind up justifying a trade when a trade is not there. These trade entries are not based on logic they are based on emotional needs. This leads to losses. The works in a very logical process and you must let the logic work for you. Stop looking at indicators and start looking at other pairs to support your entries, these are the best indicators available.
Across the board strength and weakness in groups of pairs occurs weekly in the forex. But if you search the internet far and wide you will see that it is rarely and in fact never discussed by traders, analysts, and trade planning services charging hefty monthly fees. People are too busy looking at indicators and absolutely no discussion of the market forces governing the spot ever occurs.
It is very rare if nearly non-existent for one pair to move strong without other pairs to confirm the move. This is true for any major or exotic pair. If you are stuck trading the same pairs while other pairs and exotics are making strong moves its time to look at all of the pairs every night then pick the best opportunities based on parallel and inverse analysis.
In order to trade the spot daily and weekly, you must analyze 15-20 pairs every day to determine the current market forces, this will lead to less entries, more logical entries, and better confirmation of entries when the movement starts. Parallel and inverse analysis is the logic behind the spot forex. By: Mark Mc Donnell Article Directory: http://www.articledashboard.com About the Author:
Mark Mc Donnell is the lead trading plan writer for www.forexearlywarning.com, an inexpensive trading plans service available to all spot traders. He has many years of experience trading stocks, equity options and the spot forex. He has spent the last four years of his career devoted solely in studying the movements of the spot forex, conducting trend analysis, and determining how this impacts retail level traders © Copyright 2007, www.forexearlywarning.com
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Gone are the days when stock market was limited to the rich who paid brokers to manage their portfolios. Thanks to online investing, now there is a multitude of business savvy middle class individuals who indulge in the trading game. Web sites like Forex offer opportunities to nearly anyone to start investing in the stock market and earn money as a stock or currency trader.
It is important to note that Forex is a Web site that is used by investors who are self directed. It is not for the weak of stomach, and all investors need to be comfortable with some amount of risk. And, unlike other trading sites that trade in stocks, Forex is mainly a currency trader. Access to the foreign exchange market is given through an account, and you can invest in one form of currency or another, hoping to make money off of the way currency values fluctuate.
While the main point of Forex is to allow access to the foreign currency market and allow you to make trades, the Web site does provide many tools to help you make better-informed decisions. That said, it is important to realize that trading Web sites will not take responsibility for losses, and most of them charge commission or charge a flat rate for each transaction.
Forex has a learning center for users. It provides exhaustive information about the foreign currency market. It is particularly useful for people who are not familiar with the currency trade. It helps them by explaining how the market works and how to read the market.
Another more advanced tool is the Forex trading section. This builds on the knowledge gained from the learning center and helps you learn specifically how to use Forex. In addition, Forex offers tools such as tutorials on how to read the quote board, how to understand bid and ask, and the method to figure out the high and low. The training is comprehensive enough to help you watch and understand the market trends and decide what to do.
The free practice account offered on the Forex Web site is one of the most helpful features. It opens up a mock account stocked with practice money to help investors get started without much apprehension. As you read the charts and quotes, and buy and sell you get an idea of how much money you have made or lost. It is like a warming up exercise before you actually get going in the currency market.
The Forex website makes available all the charts and investing tools to the investor along with comprehensive real-time charting and research to get on with the investment process. The training tools at the Forex help you better understand and use the charts and the research. You can set up an account with Forex with amount as little as $250 in your account and once you become member of the website you get access to more advanced charts and tools to foray in the market.
If you are looking to learn how to trade better and earn money for a vacation, or even for retirement, you can do so with the help of Forex and its direct access to the currency exchange.Article Source: http://www.ArticleJoe.com About the author: Jimmy Jooves writes exclusively for Forex Fun, there's a wealth of knowledge on the website, plus their free newsletter is well worth signing up for too. If you want to read more Forex articles go to: www.forexfun.com/articles
Click here for other unique forex articles.
By Gone are the days when stock market was limited to the rich who paid brokers to manage their portfolios. Thanks to online investing, now there is a multitude of business savvy middle class individuals who indulge in the trading game. Web sites like Forex offer opportunities to nearly anyone to start investing in the stock market and earn money as a stock or currency trader.
It is important to note that Forex is a Web site that is used by investors who are self directed. It is not for the weak of stomach, and all investors need to be comfortable with some amount of risk. And, unlike other trading sites that trade in stocks, Forex is mainly a currency trader. Access to the foreign exchange market is given through an account, and you can invest in one form of currency or another, hoping to make money off of the way currency values fluctuate.
While the main point of Forex is to allow access to the foreign currency market and allow you to make trades, the Web site does provide many tools to help you make better-informed decisions. That said, it is important to realize that trading Web sites will not take responsibility for losses, and most of them charge commission or charge a flat rate for each transaction.
Forex has a learning center for users. It provides exhaustive information about the foreign currency market. It is particularly useful for people who are not familiar with the currency trade. It helps them by explaining how the market works and how to read the market.
Another more advanced tool is the Forex trading section. This builds on the knowledge gained from the learning center and helps you learn specifically how to use Forex. In addition, Forex offers tools such as tutorials on how to read the quote board, how to understand bid and ask, and the method to figure out the high and low. The training is comprehensive enough to help you watch and understand the market trends and decide what to do.
The free practice account offered on the Forex Web site is one of the most helpful features. It opens up a mock account stocked with practice money to help investors get started without much apprehension. As you read the charts and quotes, and buy and sell you get an idea of how much money you have made or lost. It is like a warming up exercise before you actually get going in the currency market.
The Forex website makes available all the charts and investing tools to the investor along with comprehensive real-time charting and research to get on with the investment process. The training tools at the Forex help you better understand and use the charts and the research. You can set up an account with Forex with amount as little as $250 in your account and once you become member of the website you get access to more advanced charts and tools to foray in the market.
If you are looking to learn how to trade better and earn money for a vacation, or even for retirement, you can do so with the help of Forex and its direct access to the currency exchange.
Article Source: http://www.ArticleJoe.com About the author: Jimmy Jooves writes exclusively for Forex Fun, there's a wealth of knowledge on the website, plus their free newsletter is well worth signing up for too. If you want to read more Forex articles go to: www.forexfun.com/articles
Click here for other unique forex articles.
Gone are the days when stock market was limited to the rich who paid brokers to manage their portfolios. Thanks to online investing, now there is a multitude of business savvy middle class Read more...
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