This article is going to give you a simple yet extremely powerful method (plus a free indicator) to use currency strength for trading success (just see the bottom of the article where I am up over 800 pips on a single trade for reference).
The best part of this method? It literally takes 2 Seconds to find these trends.
Before I get into the 1-step process of finding the best trends that will make you the most money, let’s make it clear why this is so important. Also, read the weekly trading strategy that will keep you sane.
Understanding a Simple, Powerful Truth:
When it comes to trading currencies, the only objective we have is to pair a currency that is losing value with a currency that is gaining value in order to create a matchup that moves in a given direction.
In other words, if the Euro is gaining value (strong) while the USD is losing value (weak) then the EUR/USD is going to move upward exponentially which creates profit potential. Also, read the approach to currencies by Warren Buffett.
A Problem with Trends:
We know that it’s the difference in strength that creates this movement (shown above) that is required to make money in the currency markets, BUT it is incredibly difficult to scan through price charts and determine which currencies are the best to pair with one another (by looking at pair charts, you don’t actually know which currencies are truly gaining value because it is all relative).
After all, how do we know if the EUR/USD is rising because the Euro is gaining value, the USD is losing value or both?
The real conundrum here is that IF the EUR/USD is only rising because the Euro is gaining value, for instance, then if the Euro quits gaining value the pair will quit rising; whereas, if the EUR/USD is rising because the Euro is gaining value and the USD is losing value, the Euro could lose strength but the pair could continue to rise solely on the USD continuing to remain weak.
So, as you can see, it’s essential to pair the right currencies if you want the best chance of success.
Quit Guessing About Currency Strength:
What if there was a Tool that instantly told you which Individual currencies were the strongest and weakness so you could effortlessly make the correct pair?
As you can see, the Forex Power Indicator (FPI) individually rates each of the currencies so that you know the “true strength” of a currency rather than just trying to determine its strength by looking at a price chart.
As you can imagine, this is a huge advantage when it comes to taking advantage of the most powerful market trends.
Finviz is the best website where you can know the currency strength.
Taking Advantage of the FPI:
The key regarding the Power indicator is making sure that you combine the individual strength with other components because, of course, strengths are always fluctuating.
You won’t always win by just matching the strongest currency with the weakest one and clicking “Buy” because of the constant fluctuation in the market.
We suggest using things like trend lines, channels, Fibonacci retracements, Support and Resistance Zones, etc. in order to enhance the timing of your entry when matching up the currencies.
Another thing to keep in mind when using the FPI is that there are several different time frames to work off. The FPI will evaluate the individual strength of a currency on the Monthly, Weekly, Daily, 4 Hour, 1 Hour, 15 Minute and 5 Minute time frame.
This allows you to not only take advantage of the FPI for all kinds of different trading strategies and styles, but it also allows you to look for consistency in a given currency (for instance, if CAD is showing weakness on the Monthly, Weekly, Daily, and 4 Hour) so that you can get an even better idea of which currencies have the strongest sustained value and are likely to continue in a given trend.
All in all, the FPI is a very simple tool but it has incredible value–Remember, if you can pair the correct currencies together, you can create the maximum profit potential as a currency trader.
As I write this article, I am up over 800 Pips on a GBP/CAD trade that I used the FPI to find.