My experience in reading fundamentals

Very often, I heard from students who have been taught to read only the technical charts, and apply technical analysis in trading the currency market. At the same time, I have also consistently heard from students who have been taught to only trade the major pairs because of the tight slippage.

So, if one is to specialize only in GBP/USD, he could miss opportunities even though his view on strong GBP might be right. Keep in mind that in trading currency, we are trading the relative strength of the base currency and quote currency. So, the way I trade forex is to apply my fundamentals first to decide the stronger currency and the weaker currency so that it gives me the best bang for the buck.

I do a weekly analysis of the performance of the major 5 - EUR, GBP, AUD, NZD, CAD, against JPY and USD. It is important to chart the correlation between JPY and FSTE/ DAX and INDU, and do the same between US and FSTE/DAX and INDU. Therefore, if the correlation exists, I would roughly know that USD and JPY will be my quote currency. Of course, if JPY is stronger than USD, and if the equity market exhibits a strong uptrend, I will use USD as the quote currency and not JPY because I need to quote currency to be weaker. Does it make sense to you?

In positioning the trading opportunities by looking at the major 5 as base currency, it is useful to plot them in the format of major 6. The above is an example of how I plot my major 6 - GBP/AUD, GBP/CAD, GBP/JPY, GBP/NZD, GBP/USD and GBP/CHF. Notice that the chart is going to the upside for all major 6. This means that GBP is displaying a strength. Here you will need to understand what has happened in England.

So, with a bit more understanding of the fundamental, and the relative strength of each currency, you will realize how easy to choose the pair that gives you the best bang for the buck in a particular day. Like I shared with Ivan C in my Facebook, Oct 15's session should be a day for GBP/JPY because JPY has been weak given a bull run in the equity market. It should not be a case for GBP/CAD because commodity currency remained strong. On Oct 16, however, CAD showed weakness and this changed the game plan completely.

The above is an example of flexibility, and being flexible allows us to be in a better position than many people on the street, who struggled and pondered how to trade the currency market.