The Market w/ the Most Shorts Gives the Best Rally
Experienced traders monitor markets from a strength and weakness perspective at all times. A couple of very important reasons for this. Foremost we need to know whose the leader and whose the laggard. It also helps to know where all the money is. Take EURUSD for example. While it’s been consolidating around 134.00 for a couple of weeks now, it was still consistently proving to be the weakest currency on both a pip net change and percentage basis. From a a day-traders perspective this means that when the majors roll down we would be more inclined to take sell signals in the EURUSD, because it was such a laggard. When the majors roll up we would pass on buy signals in EURUSD, again because of it’s continued weakness. From a position traders perspective it means they are A LOT of money short this market.
Along with quantifying the differences among the various pairs we also qualify the individual pairs based on price history, pattern, and momentum. Again using EURUSD as an example we see that this market over the past month has essentially been hovering around 134.00, with it’s momentum indicators going flat. The individual market is flat, but it’s still weak relative to competing currencies. Couple this with a deluge of negative articles on all the news sources, including ad-writers on the blogs, just ahead of the weekend, and it doesn’t take much of a spark to launch a counter-trend rally ahead of the weekend.
EURUSD +132 pips today as of this posting.
Jay Norris is the author of Mastering the Currency Market, McGraw-Hill, 2009, and a pricipal in www.trading-u.com
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