Traders World Online Expo #18
Nov - Dec 2016

 
                                                                                                                         

 

 

The Three Steps to Consistent Profits  

How to Measure Risk Sentiment and Strength  

to Better Time Your Trade 

 

 

 

By Solomon FX

All traders, at some stage, whether consciously or subconsciously, undertake the search for the Holy Grail— 

That one trading system or indicator that will provide consistent results and guarantee success. 

 

In his book, Market Wizards, Jack Schwager interviews numerous profitable traders in the United States. Often Schwager asked if they were to start trading again, what would they do differently.  

 

Many answered that they would not have wasted as much time on their entry signals, but rather, would have spent that time concentrating on, and, developing other ideas.  

 

Timing our entries is important. However, there are two other ideas that precede profitable trading — Global Market Sentiment and Money Flow. 

 

 

The Power of Risk Sentiment 

 

Each day, larger scale investors of the world place trades that move monies from one market into another. As a trader, our goal is to ride the wave of money flows. Today, we can monitor the various markets around the world in real-time from our desktop or laptop computer. We can evaluate the large inter-market flows of money to indicate either risk appetite or risk aversion. If there is an appetite for risk in the markets, then we know that monies will flow in a different way than if there is an aversion for risk. 

 

For example: In a risk appetite scenario, we should see the S&P climbing along with other global indices such as the FTSE100 or the DAX. Currently, within the context of the current Euro crises, monitoring bond yields and spreads is critical to gauging investor sentiment. In a risk appetite scenario, one would also see the US Dollar devalued as investors flee the safe haven currency for higher yielding currencies, such as the Australian Dollar. 

In this example, we see the S&P 500 breaking out, using the Clarity Impulse indicator from SolomonFX.com. Notice the flip on the indicator showing conditions for risk appetite. 

Chart1

 

In this same time frame, notice the AUD/USD is also showing a BUY signal. The correlation between the S&P 500 and the AUD/USD is often as high as 94%. Two of our 3 Step Approach to trading currencies have been demonstrated in these charts. 

Chart2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Evaluating Strength in Currencies

 

We looked at the AUD/USD as a possible BUY opportunity for the risk appetite scenario. Looking at our proprietary Currency Strength Analyzer below, you can see that the AUD (1.3) is stronger than the USD (-0.7), which makes them a great pair to trade. 

 

To evaluate Currency Strength, we use our Currency Strength Analyzer, which compares over 70 individual currency pairs to provide an instant evaluation to which currencies large investors are buying and which ones they are selling. 

We will be demonstrating our 3 Step Approach to trading Forex in our Live Trading Session - Thursday, March 1, 2012—9am to 10am ET. Visit www.tradersworldonlineexpo.com for more details (Robert & Gerald Sharpe). 

 

Chart 3

 

 

 

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