This article written by Arne and Falk Elsner was originally published in the March 2014 issue of Traders' Magazine.
 

  • Arne and Falk Elsner have specialised in the main liquid markets and have been working for years with optimised trading systems on the short- and medium-term time levels. Professional trading and individual coaching are the two brothers’ core competencies


The principle of intermarket analysis is based on the interplay between the four major asset classes: bonds, stocks, commodities, and currencies. By reading the “language of the markets”, the intermarket model provides a suitable analytical basis for effective trading. Besides an introduction to “intermarkets”, this article offers concrete applications for trading and ways of optimising existing trading strategies. Based on the “crossover“ strategy, the possibilities offered by intermarket analysis as a logical trading filter will be presented.

I. Introduction to Intermarket Analysis

Intermarket analysis is all about the global capital flows in financial markets. The bond, stock, currency, and commodity markets are interrelated. If one of these markets is in an uptrend, this will have an impact on all the other markets. Intermarket analysis helps the trader tap into these very capital market flows. The multi-market approach presented below makes it possible for over and undervaluations to be recognised, providing insights into the expected market development. The past has shown that developments in the financial markets repeat themselves in similar market conditions. It is these fundamental interactions that intermarket analysis is based on. Those who understand the language of the markets will gain a better understanding of the future direction of capital market flows.

Combining Intermarkets with the Market and Business Cycles

The economy develops in a cyclical sequence of expansions and contractions. This constant change is called an economic or business cycle. It can be perfectly harmonised with the intermarket model. The market cycle relevant to traders precedes the business cycle since it is the future that is traded on the stock market. Figure 2 shows the idealised performance of the market cycle with the high and low points of the stock market.

The Stock Market Cycle Is a Harbinger of Highs and Lows

The market cycle can be divided into several stages during which the fundamental parameters on the financial markets change and new trend directions emerge. Important factors in this interplay include interest-rate developments, currency trends, the level of bond yields, and inflationary tendencies. They are the kind of fertile ground for whatever developments occur in the financial markets and these are reflected in the price charts. The occurrence and succession of distinctive performance highs and lows in the price charts of the bond, stock, currency, and commodity markets offer the intermarket analyst orientation and forecasting possibilities.

 

 

 

 

 

 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.

Education feed

Editors’ Picks

EUR/USD: Bearish pressure remains intact ahead of IFO data

The broad-based USD strength weighed on the EUR/USD pair on Friday and dragged it to its lowest level since December 2nd at 1.1020. EUR/USD could stage a technical correction before stretching lower.

EUR/USD News

GBP/USD: 50-day SMA, 61.8% Fibonacci question sellers

Cable stays weak while declining to the intra-day low of 1.3068 by the press time of Monday’s Asian session. The pair registers 3 days losing streak while also forming a lower high pattern if observed its moves from Dec 2019 top.

GBP/USD News

USD/JPY: Coronavirus bearish gap breaks below 109

USD/JPY has dropped heavily in the open, breaking below the 109 handle to print a fresh low of 108.88 as traders prepare for a risk-off week when considering the implications of the Coronavirus. 

USD/JPY News

Editors’ Picks

EUR/USD: Bearish pressure remains intact ahead of IFO data

The broad-based USD strength weighed on the EUR/USD pair on Friday and dragged it to its lowest level since December 2nd at 1.1020. EUR/USD could stage a technical correction before stretching lower.

EUR/USD News

GBP/USD: 50-day SMA, 61.8% Fibonacci question sellers

Cable stays weak while declining to the intra-day low of 1.3068 by the press time of Monday’s Asian session. The pair registers 3 days losing streak while also forming a lower high pattern if observed its moves from Dec 2019 top.

GBP/USD News

USD/JPY: Coronavirus bearish gap breaks below 109

USD/JPY has dropped heavily in the open, breaking below the 109 handle to print a fresh low of 108.88 as traders prepare for a risk-off week when considering the implications of the Coronavirus. 

USD/JPY News

Cryptos: Bears take over and draw a bloody moon

Despite appearances, Bitcoin is the asset with the best risk/benefit ratio. The current falls are adjusted to the ranges of the previous rise. Downward momentum expires in the first half of February.

Read more

Gold rebounds above $1560

The XAU/USD pair dropped to a daily low of $1556.70 during the European trading hours as the easing worries over coronavirus becoming a global epidemic and a broad-based USD strength put the pair under bearish pressure.

Gold News

RECOMMENDED LESSONS

7 Ways to Avoid Forex Scams

The forex industry is recently seeing more and more scams. Here are 7 ways to avoid losing your money in such scams: Forex scams are becoming frequent. Michael Greenberg reports on luxurious expenses, including a submarine bought from the money taken from forex traders. Here’s another report of a forex fraud. So, how can we avoid falling in such forex scams?

What Are the 10 Fatal Mistakes Traders Make

Trading is exciting. Trading is hard. Trading is extremely hard. Some say that it takes more than 10,000 hours to master. Others believe that trading is the way to quick riches. They might be both wrong. What is important to know that no matter how experienced you are, mistakes will be part of the trading process.

Strategy

Money Management

Psychology