Why do traders overlook this simple but powerful analysis technique?
|OK traders, no need to make it complicated.
If the Dollar Index (DXC) is weak, we know that pairs like EUR/USD, AUD/USD, GBP/USD and NZD/USD will be strong while pairs like USD/JPY and USD/CHF should be weak. Simple correlation here – remember college statistics?
That is not enough though, we want to know which pairs are performing better or worse than the Dollar Index (DXC) as those will likely be the best pairs to trade.
So, if we simply look at the most recent leg lower in DXC (March 11th high), we can make the assumption that the pairs which outperformed would be the ones to track going forward.
DXC is off about .62% during this time, but NZD/USD is up 1.25% (long) while USD/CHF and USD/JPY are off .80% (short).
Conclusion: only focus on NZD/USD, USD/JPY and USD/CHF. By doing this you have turned all the other noise off and know to focus 110% on set-ups in those pairs. Now you have freed up your time and eliminated the other perceived possibilities and tail chasing. That is the critical difference between those that succeed and those that merely take part!
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