Forex trading by currency indices
Every day trader's work implies periodical monitoring of price charts in order to get information that facilitates further trading. The success of the trader ultimately depends on how successful and correct analytical work is performed.
Indices as a type of technical analysis The methods of technical analysis are different and each trader selects certain methods on the basis of own trading system, preferences and experience. But, in the total volume of different variations of analytical thought, we can single out probably one type of technical analysis, suitable for all traders without exception. Namely, the currency index analysis. What is so interesting about this type of analysis besides the fact that trading indices at Forex is very exciting and profitable?
The first positive aspect is the multidirectionality.
By doing graphical analysis of the Forex market using various indices, a trader can practically always find the most interesting pairs of currencies, the indices of which are in stable opposite movement trends.
While analyzing one or even several trading pairs, a trader often gets confused by unpredictable price behavior of customary instruments where the pair can often move equally in both directions. The order placing in such situations is more like a roulette game, where the main factor is luck or blind luck.
From index trading to cross pairs Market analysis based on currency indexes widens trader's horizons substantially, showing him the trading decisions that are preferable for the current time interval, thereby preventing from trading on traditional pairs at those times, when it is difficult to analyze them for some reasons.
For example, if the Canadian dollar index shows a steady "bullish" trend, while the pound index is steadily declining, why wait for the end of the flat on the Euro-dollar pair or try to guess where this instrument will move in the foreseeable future? It is easier to pass to those instruments, the work with which will give a higher probability of successful transaction, in our case - GBPCAD, or to open transactions by trading directly on indices.
Any driver will confirm that travelling by car at dark time of the day is much more tiring than driving the same distance during the day. It is connected not only with physiological properties of the human organism. At night the orientation in space is significantly hampered when its visible part is significantly limited by the light from car headlights.
So is Forex trading. By working exclusively with currency pairs and ignoring analysis of currency indexes, the trader narrows his horizons, limits his own operational space. Studying the index charts, it is easy to understand at what point in time a currency is in its movement.
An impulse wave moves the price at the moment, or vice versa, the price corrects before continuing its movement in an established trend. By analyzing the long-term timeframe of each of the indices, the trader can understand the present and expected movement of the indices, picking the most interesting currency pairs for the long-run. This overview and planning is the second positive thing about currency index analysis.
Any technical analysis method has a right to live as long as its method helps a trader to profit from trading currencies in the forex market. The market analysis based on currency indexes does not deprive the trader of his/her usual working algorithm, on the contrary, it expands it by adding new tools into trading - indexes. Applying this type of analytics, the player is able to significantly expand the scope of understanding the nature of the origin of a particular price movement. And understanding what is happening will always help in the difficult business of making profit.