Of all the four principle capital markets, the world of foreign exchange trading is the most complex and most difficult to master, unless, of course, you have the right tools! The reason for this complexity is not hard to understand.
First currencies are traded in pairs. Each position is a judgment of the forces driving two independent markets. If the GBP/USD for example is bullish, is this being driven by strength in the pound or weakness in the US dollar? Imagine if we had to do the same thing trading stocks for example. Consider trading Google against Amazon. If this ‘pair’ were rising, is this being driven by strength in Google or weakness in Amazon? Almost impossible to analyze.
To compound this problem, every currency can be bought or sold against a myriad of other currencies. This raises the next key question. If the GBP/USD is bullish once again, is the British pound strong against all the other major currencies, such as the GBP/JPY, the GBP/CAD, the EUR/GBP etc? If it is, then this is clearly a sign that the UK pound is being bought universally in the market. Equally for the US dollar, if it is sold universally in pairs such as the USD/CAD, the USD/JPY, and others, then we can assume that the GBP/USD is rising as a result of strong buying of the pound universally, and strong selling across the market of the US dollar.
Finally, we come to the third problem, which is trying to assess the strength of this buying or selling. After all, a currency may be overbought (strong) or oversold (weak) but how strong is strong, and how weak is weak.
Consider this for a moment. Assume you have decided to buy the GBP/USD and have the following information to help you in your analysis:
- Whether the GBP is also being bought in all the other cross currency pairs
- Whether the USD is also being sold in all the other major currency pairs
- The relative strength of buying in the GBP/USD pair
Trading success is all about assessing risk and the probability of each trade. And this is what you need to judge. After all, you are now taking a position based on a view across the market.
- First, if you are basing your decision on the universal buying or selling of a currency, then you are trading with the entire weight of the market, and not just on the analysis of one currency pair. Second, if you know the relative strength of this buying or selling against all the other currency pairs, then this gives you the complete picture – if it’s strong, then you can assess the opportunity accordingly. Third and last, if you know what the counter currency is also doing in terms of strong or weak, then once more if it’s strong this gives you the information you need.
This is where the Quantum Currency Matrix steps in. It provides the solution to all three problems in one elegant indicator and is a complimentary indicator to the Quantum Currency Strength Indicator. It shows you the complete picture across the market in a simple matrix, which works in all timeframes from ticks to seconds, and from minutes to months.
From the eight major currencies come the 28 currency pairs which are then displayed in a table, with their relative strength scores, updated second by second and minute by minute. A score above 0.00 indicates bullish momentum and is displayed in blue, whilst a score below 0.00 indicates bearish momentum and is displayed in red. This is the default setting.
Each currency can then be isolated to show the 7 associated pairs and their relative scores. If all the associated pairs are showing similar strength (either bullish or bearish) then this is either a good time to join the movement, or alternatively, it may be an opportunity to wait for a reversal in trend as the pair becomes overbought or oversold.
The Quantum Currency Matrix gives you the tool to see the complexities of the forex market in real-time across all the related pairs, along with the strength of buying and selling. Whilst it is possible to do this manually using multiple charts, what a manual matrix will not provide is any measure of the relative strength. The indicator does this for you automatically by considering the price action across all the related currency pairs and then deriving the relative strength scores accordingly.
The Quantum Currency Strength indicator and the Quantum Currency Matrix are the perfect combinations. The first gives you the ‘heads up’ on the individual currencies. The second then completes the picture, giving you a three-dimensional view across the 28 currency pairs. Together they allow you to assess the outcome of each and every trade – instantly – giving you the tools to trade every pair with increased confidence.