What’s the number one thing to grasp in FX trading?
Now, during this Covid-19 lockdown I’ve been watching a lot of films, and last night I sat down with my family to watch the Rocky anthology. Always a great series to watch, Rocky, and just finished watching Rocky 1.
Now, that reminded me of the number one thing to grasp in FX trading. You know, there’s many different aspects of trading, of fundamentals, of technicals, sentiment analysis, trading psychology, risk management, etc, etc. The reality of course is we have to grasp a combination of these to be successful in trading.
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However, the one main thing, the one takeaway that you really need to grasp in FX trading is something that’s a very simple concept, and once you’ve got the concept it really helps you in your trading. And the main thing to grasp is to pair strength against weakness.
Whenever you’re trading a currency you always want to trade a strong currency pair against a weak currency pair.
Now imagine for me a couple of boxers. Now imagine one boxer is in top condition, he’s fantastic, he’s been working hard, training hard, and another boxer is overweight, out of shape, and he’s unprepared for the fight. And he’s also, you know, in the wrong weight category.
One boxer is a heavyweight champion, the other boxer is a welterweight but he’s out of shape. Which boxer would you favor to win? The strong! And if you had to bet money you’d always bet money on the strong beating the weak. Well it’s exactly the same in the currency space.
Every day at Financial Source, we’re looking to pair a weak currency against a strong currency. And so today, we paired the weakness of the US dollar against the strength of the Australian dollar. Positive risk sentiment has been flowing through equity markets as European and US equity markets are rising to the upside, and we’ve seen weakness in the US dollar.
That positive risk on sentiment has resulted in dollar index weakness, and you can see here the dollar index falling. So, as result, we’ve maintained an upward bias on the Australian/US dollar and the New Zealand/US dollar currency pair.
We are pairing strength against weakness. And in your trading, whatever level you’re at, if you’re just new to trading, maybe you’ve just joined the Financial Source terminal, maybe you’re investigating FX trading to see if it’s for you? Well keep this one thought in mind, every time you’re trading, you wanna be asking, “Am I trading a weak currency pair “against a strong currency pair? “And if I’m not doing that, I should be!” I hope that helps to realize what the number one thing to grasp in FX trading is, and don’t forget the image of those two boxers.
You want to be pairing a strong boxer against a weak boxer to be sure of the outcome, in a veery similar way you want to pair a strong currency against a weak currency pair in order to be more certain of the direction of that currency pairs movement.