Gauging Strength & Weakness, How Markets Move
I had an old chemistry teacher who taught me a very valuable lesson. He said: “when you turn up the heat, you get a natural reaction”. He was refering to chemicals, but I knew this to be true of people also. I”ve also learned that it’s true with markets. Next time you see a sharp price movement over a couple of days, notice which pairs moved the furthest, and which ones lagged. It’s a simple way to determine which market is strong and which market is weak.
Buying strength and selling weakness is a tenet of trading. Last week we saw a serious correction to the primary up-trends at play in the major currencies. GBPUSD however, only went down for one day, while the other majors gave us a three day sell-off. This was valuable information because when the markets rolled up and gave intraday buy signals, as will happen even in strong down trends, astute traders went right for the least weak market, GBPUSD. In trading least weakest = strength, and least strongest = weakness.
Jay Norris
www.trading-u.com
DISCLAIMER: Futures, options and Forex (off-exchange foreign currency futures and options, or “FX”) trading involves substantial risk of loss and is not suitable for every investor. The valuation of futures, options and Forex may fluctuate, and, as a result, clients may lose more than their original investment.
Very good observation, thank you for bringing it to my attention.
Hi Connie,
Thanks. It works well on a longer-term basis in stocks also. next time stocks have a really nasty day on the down side, look to see which companies ended up unch’d or even slightly higher on the day, and remember those issues…