Home About Us Login Subscribe Blog Trading Tips Contact Us Education 35 Lessons Videos Webinars Sitemap. Forex Analysis Using Parallel and Inverse Currency Pairs. If a currency trader does not understand forex analysis using parallel and inverse pairs, they will likely have almost no chance of being a successful forex trader. Their odds of successful trading increase dramatically if they understand it well. Forex analysis with parallel and inverse pairs can be learned in a very short period of time.
This article will increase your understanding of these these parallel and inverse pairs concepts, as a forex trader the information is critical.
Parallel and inverse analysis is the study of how individual currencies influence the movements of currency pairs and their intra-day movement cycles or within the context of a trend. It has also been called currency correlations and individual currency analysis. However forex trading success would skyrocket if forex traders would master these concepts. Parallel and inverse analysis of the spot forex can be learned in about two to three weeks by any forex trader at any level.
Here are the eight most widely traded individual currencies in the spot forex that we will examine in this article: Please note that an individual currency is not a currency pair, it seems very simple and fundamental but it is the crux of this entire article so we must be very clear. Remembering that a currency pair is comprised of two separate currencies will open your eyes the correct way to conduct a forex market analysis and more pips will begin coming your way.
An example of a parallel group of currency pairs is as follows. In the first group of pairs on the left, the common currency is the EUR Euro , it is the base currency. When the EUR is strengthening all of these pairs must be moving up. The second group of pairs is the JPY pairs. If the JPY is strengthening all of the JPY pairs would have to be dropping since the JPY is not the base currency, it is the cross currency on the right side of the pair. Now look at the third group of currency pairs, the NZD pairs.
For the NZD to be strengthening the top 4 pairs would all have to be rising and the bottom 3 pairs would have to be falling. Forex analysis by parallel and inverse pairs will explain why currency pairs move and how fast, which is vital information to forex traders.
Lets look at some examples.
You have confirmed the movement with two pairs. We can show you how to confirm with than two pairs also. The USD is completely out of the picture in the second example as far as what was driving the driving movement of the market. Later in this article we will show you how to confirm trades with multiple pairs. These are two of the most basic examples. Not knowing this basic information represents the biggest failing of forex traders worldwide.
Although this relationship between pairs and the real reasons for their movement being the movements of the individual currencies is simple and basic it escapes nearly every trader, although the logic is incredibly clear. This simple, basic logic works for all 28 currency pairs derived from the eight most widely traded currencies. Simple techniques like this and conducting a forex analysis using parallel and inverse pairs will always get you into the pips and the main action of the market.
Following 8 currencies and 28 pairs this way can easily generate up to to pips of forex trading profits in a single week of trading, if the market is trending on a lot of pairs.
This is the same logic as the examples above, but this time we are using different pairs and currencies. This logical way to conduct a forex analysis works on any currencies or pairs. Once again, each currency pair has two individual currencies, by looking at currency pairs in the same groups of pairs, once currency at a time, you can quickly determine what is driving the movement.
This is an incredibly simple method of forex analysis, but completely ignored by almost all forex traders. Now apply this logic to any one of 28 currency pairs comprised of the eight major currencies. Almost immediately you will start to understand why currency pairs move. You will also start to get many more pips out of your trading using the basic individual currency analysis method.
This forex market logic presents itself daily to forex traders but almost no forex traders notice. The forex technical indicators and systems available now to forex traders do not take this simple logic into account and these systems are all fundamentally flawed. The parallel and inverse method of forex analysis is superior to any technical analysis methods.
When we say total market analysis we are referring to the 8 currencies and 28 pairs we follow at Forexearlywarning. But these techniques wok on any group of forex pairs. When you analyze the forex market always analyze currency pairs as a group, by individual currency, not individually as a single pair. Currency pairs are not an island. Always analyze all of the USD pairs together, then analyze all of the JPY pairs together, then analyze all of the CAD pairs together, etc.
If traders do this every day, the trends of the market, oscillations and consolidation cycles will jump out at you right off of your charts and into your lap.
If a particular group of pairs are all behaving the same way the market becomes a heck of a lot easier to trade. It is also very easy to spot choppiness or a more difficult market and you may consider not trading at all today, and with good reason. Getting forex traders to analyze individual currencies is nearly impossible. But it is imperative to analyze pairs by individual currency carefully. Doing so will allow you to make better decisions as to when to trade, and it will make a lot more sense as to why you should stay in your trades.
This concept works for any pair or group of pairs, and that is why the method is solid. Here is an example of how to correctly use parallel and inverse analysis to analyze the condition of a particular currency pair.
You would be looking for consistent strength or weakness, trends, oscillations, or movement cycles in the USD. This is by far the most thorough method of forex analysis, and it works and it works on any pair. Conducting a forex analysis using parallel and inverse pairs is totally logical and starts to reduce or eliminate entry risk of forex trades. You can use our handy forex market analysis spreadsheet to analyze pairs this way every day.
Currency pairs consist of two items, the base currency and cross currency. Traders must separate the two then analyze each one. Most forex traders treat a currency pair like a single unit, or like it is an island in the forex market. This is a huge error and almost every forex trader does this. This is not only a mistake but also a complete fallacy and a complete falsehood that leads to consistent failure.
The EUR and USD are two separate currencies that can both be weak, both be strong, or both be moving in opposite directions at any time in a trading session or within the context of the current market trends.
This is very easy to prove by daily analysis. Now you can apply this same logic to any currency pair, it works. Almost all forex traders apply technical indicators to currency pairs, after you read this section of the article you may never do it again or you will at least wonder why you ever did it in the first place. I have literally seen forex traders take every technical indicator off their computer and charting system after realizing that what you are about to read below is true.
It works the same way. Technical indicators do not take individual currency strength or weakness into consideration.
There are over technical indicators and over candlestick chart types available to forex traders. But indicators do not drive movement on a currency pair.
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The only thing that drives movement on a currency pair is the currency strength or weakness of the two individual currencies that are in the pair, that's it, that is all, nothing else. In this regard technical indicators are worthless because none of the indicators measure these quantities.
Technical indicators are applied to pairs, not individual currencies, and that is the failure point. An analogy is this, the only way a car can move is if you step on the gas pedal, this is what actually causes the car to move. Individual currency strength and weakness is the gas pedal for a currency pairs, this is what makes them move. Technical indicators do not make currency pairs move they just "indicate". Indicators are nothing more than drawings on your computer screen.
The failure rate of forex traders is incredibly high and now everyone can see why. I strongly suggest that forex traders start their forex analysis with parallel and inverse analysis groups of pairs to analyze individual currencies, and individual currency pairs. Traders can also use parallel and inverse analysis of individual currencies also at the point of trade entry. Trends can be analyzed by parallel and inverse currency pairs. An intermediate or longer term trend can be created by the day to day dynamics of the forex market.
Throughout the course of the trend the movement drivers could be the USD strength or the JPY weakness on a day to day basis because the market dynamics can change day by day. In between the movement cycles the pair consolidates or retraces. Almost no forex trader can explain what a trend really is on the forex, even people who claim to be a trend trader, however we will provide you with an accurate definition of a trend here.
A trend on a currency pair is nothing more than a long series of continuous movements both sides currencies of the pair that favors movement in one direction.
Parallel and inverse analysis wins again with obvious, simple and logical analysis. It wins every time because it is the logic behind the spot forex.
Learn parallel and inverse analysis and you will learn to clearly identify and capture pips from forex trends. This picture is a continuation of the previous image.
The black line represents the movement cycles and consolidation cycles on a conventional price chart like a bar chart, simplified with a black line.
Each individual up cycle within the trend is either EUR strength or JPY weakness or both.
In this case each upward movement off of support is EUR strength or JPY weakness. This same concept of forex analysis works on all 28 pairs we follow, or any other currency pair for that matter.
Once again forex analysis using parallel and inverse analysis pairs comes to the rescue. You now know what a trend is and why currency pairs move. Sometimes in a choppy market currency pairs are not moving and the market becomes choppy. Generally speaking a ranging market can take on two forms. Currency pairs ranging up and down in large oscillations that are smooth cycles, easy to spot and trade.
The other form is a tight ranging choppy market that are so difficult to trade that it is best to trade for less lots or not trade at all. In a tight ranging market the market drivers, or currency pairs pushing movement, changes almost daily.
One day the AUD is strong the next day the CAD is weak and the next day the USD is strong, etc. In a trending market the market dynamics change far less frequently.
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In a choppy market the individual currencies driving the movement change much more frequently, almost day to day. Or else the same group of pairs moves in different directions on consecutive days, for example the USD is strong one day and weak the next. Each currency pair has two separate currencies, so either currency in the pair can be driving the movement. Traders should be able spot a difficult to trade, choppy market rapidly using parallel and inverse pairs.
If all of the USD pairs look the same or all of the CHF pairs look the same you have confirmed that that pair or group is choppy.
Remember that currency pairs move because one currency is strong and the other is weak. In a choppy market both currencies might be strong or weak, creating the "tug of war" that leads to choppiness. Conversely, identifying a trending market will become much easier as well by checking the parallel and inverse pairs. Your trading confidence will skyrocket. This is why all forex traders should review the condition of as many currency pairs as possible in your day to day market analysis routine in the same parallel or inverse currency groups that you are interested in trading.
Using multiple time frame analysis and drilling down the time frames will unveil what is going on with the pairs you are interested in trading. Combining the multiple time frame analysis with parallel and inverse pairs becomes very powerful. You may not even trade some of the pairs you analyze but you will always know what is going on in the market. Identifying a choppy or trending market becomes much easier, and after some practice, second nature.
Forex analysis with parallel and inverse pairs can be use to analyze charts and trends, but it can also be used to analyze and verify potential trade entries. The number one question forex traders have is "When do I enter the trade??
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Once again parallel and inverse analysis will solve this problem. After you analyze the forex market trends and you write up your trading plan, you can then set your audible price alarms at critical areas of support and resistance across some key pairs. When the alarms go off in the main trading session, or after significant forex news, parallel and inverse analysis can be used for accurate trade entry management.
Forex traders need to know when to get in, when to stay out, and when to look at another pair. They need an entry management tool that verifies the trade entry. The heatmap utilizes parallel and inverse analysis to tell a trader what pair to enter and in what direction across 28 pairs and the eight major currencies. The basis of the heatmap is parallel and inverse analysis and individual currency strength and weakness.
Here is an example of a slingshot: Some of the more volatile GBP pairs can move pips in one trading session. After trading with tools like the heatmap and using parallel and inverse analysis, trading the forex market with technical indicators becomes completely obsolete.
This lack of knowledge eventually kills their demo accounts. Forex traders will never realize the real profits of the market until they become experts at parallel and inverse analysis, which drives the movement in the entire market every day. Thorough knowledge of parallel and inverse analysis and daily forex analysis using this technique will permanently change the way you think about the forex and give traders solid a rationale as to why currency pairs move. Press Releases Forex Articles Audio Training Library.
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