steve.jarvis's picture

1st quarter review. How do the FX markets differ compared to early January?

At the start of the year, USD, NZD, & GBP were my top three ranked currencies, with CHF, CAD & EUR neutral and NOK, SEK, JPY & AUD classified bearish.  Each week since then I have reviewed these rankings and there have been a number of currencies which have moved up or down the order during this time.  Some weeks there have been no changes at all, which is to be expected given that these are medium-term rankings.

Just because the outlook is for around 3-6 months, it doesn't necessarily mean that once a Currency enters either the bullish or bearish group it will stay there for as long as that, as with any system there are occasional false signals.  Equally, some currencies stay there for much longer.

Three months on, the USD, NZD & GBP all remain primarily bullish as they did in early January, although the latter two are now not so strong as they were and have been overtaken by the CHF & JPY.  The USD has actually been in the bullish group for over 6 months and for now this shows no immediate signs of ending, so yet further broad USD gains may be seen over coming weeks.

The neutral group now consists of just the CAD & AUD, with EUR, NOK & SEK the bottom three at this time. NOK has actually been at or near the bottom of the rankings now for almost 6 months, but looking through each of its individual charts, there are no immediate signs of it bottoming out and moving up the rankings, so further broad NOK weakness may continue to be noted.   

It is all very well knowing the broad trend of a particular currency or FX pair, but in order to profit from this, the key is to identify a low-risk entry point and an appropriate take profit.  Of course, Tradermade's FX Analysis service can help FX market participants do just that.  The trick to entering a trade at low-risk is to work backwards from knowing where you wish to place your stop - IE the point the perceived market direction is over.  Over time, taking this approach will provide a better outcome than the alternative of buying or selling now and working out what your stop needs to be from your entry point.  It is better to miss a trade altogether than be stopped out several times, only to find you were right all along!

Many participants find that taking profits is an altogether much harder discipline, due to the emotions involved with needing to sell when the market is at its most bullish or be buying when it seems increasingly bearish.  It will help if your take profit level is a combination of a projection and a channel top or bottom. Here at Tradermade, we find that approach works well for us, but for newcomers, actually having the confidence to know where to be placing trend lines and projections can be an issue.