I was thinking about forex trading on the weekend, and in my mind I was breaking down the concepts to their most basic structures. Apologies if this is really basic but this was my thought process.
If I go long USD/JPY I'm buying USD and selling JPY. If USD gets stronger and JPY gets weaker, I make money. But let's say that CHF is weaker than JPY, then a better trade would be to go long USD/CHF. So then I thought the key is to find the very strongest currency and sell the very weakest currency. In this example I guess I could have looked at a CHF/JPY to see how CHF was moving in relation to JPY, but then I'd be looking at lots of charts and it would be a long and drawn out process. I remembered seeing a chart for called the USD Index, so I was thinking if I could look at indices rather than crosses, it would be much easier to identify the very strongest currencies and very weakest.
Does anyone have any thoughts on this? I've searched FF and can't see much in the way of currency indices. I've googled it and I can't find anything other than the USD Index. I found the formula for it on babypips.com and it looks weird (it contains SEK but not AUD???) and I'm not sure how to use it to create other indices.
If I can't find anything out there that makes me think either this is a brilliant and innovative way of thinking about things or a very stupid idea. It's probably the latter but I thought I'd throw this out to the much smarter people here to explain to me why this won't work.
Thanks in advance
Pete
If I go long USD/JPY I'm buying USD and selling JPY. If USD gets stronger and JPY gets weaker, I make money. But let's say that CHF is weaker than JPY, then a better trade would be to go long USD/CHF. So then I thought the key is to find the very strongest currency and sell the very weakest currency. In this example I guess I could have looked at a CHF/JPY to see how CHF was moving in relation to JPY, but then I'd be looking at lots of charts and it would be a long and drawn out process. I remembered seeing a chart for called the USD Index, so I was thinking if I could look at indices rather than crosses, it would be much easier to identify the very strongest currencies and very weakest.
Does anyone have any thoughts on this? I've searched FF and can't see much in the way of currency indices. I've googled it and I can't find anything other than the USD Index. I found the formula for it on babypips.com and it looks weird (it contains SEK but not AUD???) and I'm not sure how to use it to create other indices.
If I can't find anything out there that makes me think either this is a brilliant and innovative way of thinking about things or a very stupid idea. It's probably the latter but I thought I'd throw this out to the much smarter people here to explain to me why this won't work.
Thanks in advance
Pete