Session #3 Finding Relative Strength/Weakness
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Session #2 Review Forex Market Terminology PIPs, Spreads, Long vs. Short Currency Crosses Dominant Pairs Currency Swaps
Session #3 Schedule Time frames Relative Strength/Weakness Determine Strong/Weak News Events Correlations
Time Frames One of the most difficult things for traders is to understand the concept of time frame Two traders on opposite sides can both be right or both be wrong
Time Frame Example Total PIPs 40 Trader #1 Short Term Long at 96.20 Sells in 1 hour (4 candles) Trader #2 Short Term Short at 96.20 Buys in 1 hour (4 candles) Entry 96.20 Trader #3 Longer Term Long at 96.20 Sells in 24 hrs (96 candles) Trader #4 Longer Term Short at at 96.20 Buys in 24 hrs (96 candles) Total PIPs 50
Time Frames What time frame do you want to trade? What time frame fits your schedule/lifestyle best? What time frame fits your personality best? Build your trading plan around these answers
Time Frames Short Term (scalper) Avg. Holding time 5-60 minutes Intermediate Term (swing trader) Avg. Holding time 1-24 Hours Longer Term (Position Trader) Holding time > 24 hours
What time frame is best for you? We don t know the answer Use the trading personality test results Try different trades on the simulator/trading demo Keep records and see which style gave you the best results and was easiest to follow
Relative Strength and Weakness
Relative Strength & Weakness Relative Strength and Weakness is the theory that you must measure against something to determine strength We will attempt to list all currencies from strongest to weakest or First through Last First step of Forex Trading
Major Currencies of the World Currency Name ISO abbreviation Return vs USD Today Euro dollar EUR +.35% Great British Pound GBP -.25% US dollar USD +.00% Swiss franc CHF -.17% Japanese yen JPY +.56% Canadian dollar CAD +.29% New Zealand dollar NZD -.57% Australian dollar AUD -.14% 2 nd 7 th 4 th 6 th 1 st 3 rd 8 th 5 th
Relative Strength & Weakness Several Ways to determine Ranking Quotes Charts Relative Strength Calculator Tools Member s Area of website
Relative Strength & Weakness Quotes Easiest way is to list all JPY pairs in a group
Relative Strength & Weakness Charts Compare Charts against each other
Relative Strength & Weakness Calculator Located in tools in members area of www.maverickfx.com
The Currency Board is where we attempt to list strong and weak currencies each time period
Why do we focus on Relative Strength? There are hundreds and hundreds of research studies done on trend following/buying the best performers Studies show you can statistically gain an edge by buying an outperforming asset The weakest assets historically performed the worst going forward
Countless research has shown that what has happened in the past has statistical relevance to future performance. Some studies: A Century of Evidence on Trend Following Hurst, Ooi & Pedersen Trend Following Covel Trend Following: Performance, Risk and Correlation Rulle Trend Analysis
Momentum Study Jagadeesh & Titman Momentum Study Study Included all stocks traded on the NYSE, NASDAQ and AMEX between 1965-1998 Study looked at buying the stocks with the highest returns over the past 6 months and measured the return over the next 6 months
Momentum Study Findings were the top performing stocks tended to outperform the overall market by 40 basis points The top 10% of stocks beat the bottom 10% of stocks by 123 basis points The top 10% of stocks were positive 66% of the time over the next 6 months
Conclusion/Next Steps Browse and Watch Advanced Concept Videos Relative Strength and Weakness Calculator (49 Min) Continue with Forex 101 and complete the tests Continue the process of building your trading plan Work on Time Frame Question Practice Determining Strength/Weakness Play with Calculator Choose a timeframe (ex: the last 2 days) and determine strongest and weakest