Learning to Trade off Market Repetition with Ease A Powerful Lesson in Forex Market Liquidity can be experienced by sitting on the beach and looking out at the ocean. If you’re not close enough to a beach, no worries, your imagination will do. Is there something you can see that relates trading in some way? The water and the waves crashing upon the shore. This is what market liquidity does every day, every hour and every minute so let’s learn from it. As we sit upon the shore, the similarities between the ocean waves on the shore and market liquidity contributes to one of the most powerful methods and approaches of market analysis.
Think of the ocean’s tide as a trending market advancing upon the shore. What’s happening to the waves of movement is quite similar to the ebb and flow of FX liquidity, market sentiment and ultimately traded volumes. The tide and waves show you the higher lows and highs just before they peak at the top of the trend and crest. This is exactly what happens with market liquidity and exchange rate movements. While the top of the trend shows us a highs, the downward trend starts with the ebb and flow receding in the same manner as the climb.
I’ve taught traders with this metaphor for 18 years. It’s provided many traders with a dynamic understanding of market movements in FX. Learning to trade foreign exchange isn’t difficult, or at least it doesn’t have to be. Instead though of studying technical studies, focus on the forces that cause the market to move in the first place and you’ll experience tremendous gains in both confidence and performance!
Wiping the Slate Clean for Fresh Market Insight When traders approach me to teach them how to trade forex, before they access the Forex Traders Course I start by helping them wipe the slate clean. This triggers an opening in the mind so they may study the core influences of exchange rates. It’s the cross border money flow that traders never see and it’s by far the most powerful analytical approach there is as it allows us to use natural market sentiment to lead prices at every turn. This is the very reason why prices move, how far they move and exactly when exchange rates present us opportunities we can capitalize on.
The Core Influences of Exchange Rate Movement So if cross border money flow causes exchange rates to move, how do we identify this ‘money flow’? I’ve integrated non lagging currency indexes into my approach and trader instruction. The indexes allow us to compare apples to apples with normalized values. This is one part. We can see when exchange rate movement change their trend when indexes cross one another. This is important as trends cannot change unless the indexes in fact cross with their underlying values.
One FX Rate Two Instruments While we may be trading the relationship between the two currencies on our charts, there are in fact two instruments we’re analyzing. This strongly suggests that any analysis that does not analyze currency values in their individuality is a flawed approach, which then makes perfect sense as 90% of traders fail when trading FX due to unknown factors. Sentiment and Volume are the unknown factors.
Strong Opportunities to Speculate on FX Rate Movement While the currency indexes are important – what’s more important is the differential between the indexes. This provides us a glimpse of money flow into one currency and a opposing difference in the volumes of money flow into or out of the counter currency. We see statistically strong movements when the two indexes have a differential of 10%. It’s AMAZING!