A lesson in how to select the best currency pair to trade with trend strength

A lesson in how to select the best currency pair to trade with trend strength

How do you choose the best currency pair to trade? And what do we mean by best? Most of the time we are looking for strong trends, either a reversal in sentiment where the trend reverses or the continuation of an existing trend. But how do we know which is likely to deliver the strongest trend, and the answer is simple. We match the strongest with the weakest and in doing so are likely to see the strongest trend as a result. The indicator we use to do this is the currency strength indicator which highlights instantly and visually which currencies are rising strongly, which are falling strongly and just as important those which are moving sideways and therefore have neither strength or weakness.

00:11

Introduction to Pound Yen Reversal

00:11

The speaker discusses a live trading setup focusing on the Pound Yen currency pair, highlighting a technical reversal driven by increased market volume and the crossover into the London trading session. This period is known for typical market behaviors such as reversals, traps, and volatility, which occur daily across various currency pairs. The speaker also mentions monitoring multiple time frames including 15 seconds, 1 minute, 3 minutes, and 5 minutes to capture intraday price movements effectively.

01:10

Yen Sentiment Driving Market Movement

01:10

The segment discusses the current price action on a daily chart, focusing on a potential reversal driven primarily by yen sentiment. The pound is beginning to gain strength, but initially, the trend was weak because the movement was largely influenced by selling pressure on the Japanese yen alone. This caused the price to move sideways with only minor bullish momentum, which is now starting to strengthen, as observed on a shorter 15-second chart.

02:16

Multiple Time Frames and Trend Strength

02:16

The segment explains the transition of trend monitor colors indicating shifts from bearish to bullish momentum. The speaker adjusts the charts for clarity and highlights no changes on the 5 and 10-minute charts, emphasizing the importance of multiple time frames. Strong buying in the British pound and selling in the Japanese yen are driving clear trends. The example of the Aussie yen demonstrates that strong momentum in both currencies leads to a robust trend. Similar strong trends are noted for the euro, New Zealand dollar, and the US dollar, illustrating the effectiveness of the Currency Strength Indicator (CSI) as a comprehensive market overview tool.

04:08

Currency Strength Indicator Explained

04:08

The segment explains the concept of using the Currency Strength Indicator (CSI) as a tool to identify where trading opportunities lie, similar to how a trawler uses sonar to find fish. It highlights that the CSI not only shows where to look for trades but also indicates which trades may be stronger or weaker. The discussion includes examples of currencies like the Swiss franc and the Canadian dollar, noting that some currencies may be moving sideways without a strong trend, making them less attractive for trading. Additionally, it covers the importance of analyzing multiple time frames with the CSI, from one minute to fifteen minutes, to catch early signs of trend reversals or changes in direction, emphasizing that trends often begin on the fastest time frame.

06:01

Trend Reversals Across Time Frames

06:01

The market is beginning to show signs of pound buying, with pause points evident during the upward movement. On various time frames—five, ten, and fifteen minutes—the charts indicate a rally starting after being heavily oversold. The strong sell-off of the Japanese yen is driving the current market dynamic. A true reversal is expected to begin at the fastest time frame, then appear progressively in slower time frames, reflecting the momentum needed to sustain the reversal across different trading windows.

07:02

Traders operating on different time frames may interpret the same market movements differently. While short-term traders might see a buying opportunity in pound-related pairs, long-term traders might view these movements as minor pullbacks within a continuing trend. This difference necessitates a focused, time frame-specific approach to trading. The market operates in cycles within cycles, with trends, reversals, and pauses occurring simultaneously across various time horizons. Recognizing this layered structure helps traders align their strategies with their chosen trading windows.

08:27

Trend Monitor for Trade Confidence

08:27

The trend monitor was developed with a single objective: to help traders maintain confidence and stay in a trade despite market pullbacks designed to shake them out. The market often has minor pullbacks with falling volume, which can indicate whether a reversal is genuine or just a temporary congestion phase. Understanding these volume patterns helps distinguish true primary trend reversals from secondary trends or pullbacks.

09:30

The segment explains how markets transition from primary downtrends through congestion phases into primary uptrends, which indicates a full reversal. It also highlights secondary trends, which are smaller counter-moves within the main trend, often characterized by falling volume and not representing full reversals. These secondary trends are typical pullbacks that traders must recognize to avoid premature exits.

10:26

Analysis focuses on volume behavior during different market sessions, particularly comparing European and London trading times. Volume increases as London opens, with slight weaknesses indicated by falling volume not necessarily signaling an immediate reversal. Attention is drawn to volume-based indicators like the volume point of control, which helps in assessing the strength or weakness of price movements in real-time trading.

11:18

Volume Profile and Resistance Levels

11:18

The speaker explains how price action encounters varying levels of volume, which affects the effort required to move through price regions. High volume areas act as strong support or resistance, while low volume nodes allow price to pass through more easily. This insight highlights the importance of volume in trading decisions and introduces the use of multiple time frames to better understand these dynamics.

12:17

Using the three-minute chart and specific indicators like accumulation distribution and dynamic support and resistance, the speaker identifies stiff resistance ahead marked by thick price-based support and resistance lines. These lines are precise and indicate areas likely to cause market congestion or pauses. The presence of clustered resistance levels suggests that price may struggle to break through without significant volume.

14:11

The speaker emphasizes the importance of volume clusters, noting that a large volume area above the current price level indicates strong resistance. Multiple time frames, such as five-minute charts, confirm this resistance and highlight expected congestion zones. The trend is unlikely to run strongly through these areas without considerable volume support.

15:07

On the ten-minute chart, the volume point of control and heavy resistance levels reinforce the expectation of market congestion ahead. The speaker notes a diminishing volume on recent rallies, signaling weakness. Candlestick patterns with upper wicks and falling volume suggest that the market is not showing strong signs of a sustained reversal but rather some hesitation or weakening momentum.

15:57

Volume price analysis (VPA) highlights the need for patience despite early signs of market weakness. Although strong buying or selling signals may appear, the market does not always reverse immediately. Comparing candle volumes shows diminishing buying interest and increased price rejection, indicating expected weakness. VPA provides confidence in anticipating likely market movements.

17:20

The speaker discusses the trend monitor and longer-term charts, showing a rally on low volume that suggests a weak upward move. Similar patterns appear on daily charts with significant volume clusters indicating strong support and resistance zones. The volume point of control shifts over time as volume builds in different price areas, reflecting changing market balance and congestion phases.

19:11

The volume point of control acts as a market fulcrum, balancing bullish and bearish sentiment like a seesaw. When imbalance occurs, the market moves accordingly. Current five-minute charts show a weakening rally in the pound, signaling an approaching end to the current upward phase. This dynamic helps traders anticipate potential shifts in price direction.

20:06

Using the currency array tool, the speaker highlights how recent market sentiment showed the pound as the weakest currency among major pairs. The array functions like a radar, continuously scanning and reflecting strength or weakness across currencies. This helps traders identify trending pairs and gauge overall market sentiment, enhancing decision-making in real time.

21:14

Market Sentiment and VIX Insights

21:14

The discussion begins with the observation that the New Zealand yen and Aussie yen are leading a market upswing, followed potentially by the pound yen. These currencies had been weak but are now gaining strength, reflecting a broader trend within the yen complex. The speaker emphasizes the importance of trading with the overall market sentiment or ‘universal flow,’ as trading against this trend carries higher risk. Understanding whether a currency pair aligns with this general sentiment is crucial for successful trading.

23:06

Attention shifts to the VIX index, which the speaker has been monitoring closely. Despite strong gains in US indices like the Nasdaq, the VIX had not dropped to expected low levels, signaling a potential market correction. Recently, the VIX has started moving lower, which aligns with rising US indices such as the Dow, Nasdaq, and S&P 500. This shift indicates growing risk-on sentiment in the market, confirmed by both the VIX movement and the strength in major US stock indices.

24:04

The market’s recent three-day downturn provided excellent trading opportunities, especially in indices and the yen complex. Now, an intraday reaction shows renewed risk-on sentiment, reflected in the weakening yen and rising commodity currencies like the Aussie and New Zealand dollars. Traders are advised to focus on these strong-moving pairs rather than less active ones like pound yen, which is showing congestion and no clear trend.

25:32

Commodity currencies such as the Aussie and New Zealand dollars are rallying strongly, supported by improving conditions in related markets like oil. Despite recent bearish trends in oil, there is a slight uptick that benefits currencies linked to commodities, such as the Canadian dollar. The speaker highlights the use of multiple time frames and indicators to monitor market momentum and trading opportunities, emphasizing the importance of patience and careful analysis.

26:35

The speaker warns about the dangers of reacting impulsively to sudden market moves triggered by volatility. Such moves often represent traps set by market makers who exploit traders’ fear of missing out. The volatility trigger signals potential market congestion or reversal, and traders should be cautious before entering positions during these fast moves. This phenomenon is relevant across all time frames and is designed to pressure traders emotionally.

27:59

Market congestion following a volatility-triggered move often leads to emotional stress for traders who entered expecting a clear trend. Many may close their positions prematurely due to uncertainty. The volatility trigger is a tool used by market makers to induce such reactions, increasing trading pressure and potentially causing traders to exit at a loss. Enduring through congestion is possible if traders believe in the market’s direction, but they should be aware that congestion often precedes either a market reversal or continuation.

29:03

The speaker concludes this segment by highlighting the emotional challenges traders face from volatility and congestion, stressing the importance of patience and awareness of market psychology before passing the discussion back to Anna.

By Anna Coulling – creator of volume price analysis