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
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
The Power of Risk
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
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.
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.
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
Evaluating Strength in
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
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
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).