Currency Trading – Everything Is Relative

When trading Forex one has to keep in mind – everything is relative.

Weakness in a particular currency is only “seen” when that currency is compared / traded against another “specific currency” where the “relative” difference / change in value can be compared.

Hence the reason why forex is always traded in “pairs”.

Often we see the pair EUR/USD ( the Euro compared to the US Dollar ) and generally assume “dollar weakness or strength” based on this pair – and this pair alone, yet the dollar’s performance vs AUD ( The Australian Dollar) for example “could” be an entirely different story depending on specifics affecting AUD.

To “generalize” or to “assume” a given currencies direction without viewing it “specifically” against each and every individual currency would be naive , lazy – and likely quite costly.

The US Dollar has taken a considerable down turn “again” this morning – or has it?

Against the EUR sure ( as these two will always “see – saw” being the two most widely held reserve currencies on the planet ) but in all……….USD has barely budged against a pile of others.

The one thing that has moved here this morning is volatility. Volatility is up , up , up and away.

Spend the time ( it might actually take 5 minutes a day ) to get familiar with currencies, oil , stocks , gold etc  in a “relative manner” and before long – you’ll be seeing things much more clearly.

2 Responses

  1. brosbhos October 4, 2013 / 6:05 am

    Depending on the experience of your readers this might just be the most valuable post you’ve ever written. At least it is for me.
    I have so much more to learn. How money flows from one market/security to another, what fundamentals impact this or that currency, etc. Seeing things in a relative manner is probably close to second nature to you by now, but it certainly is a struggle for a complete newbie like me. Keep the good posts coming.

    Cheers from France.

    • Forex Kong October 4, 2013 / 7:30 am

      Yo Bro!

      You are most certainly on the “path to understanding” ma man. All I can encourage is to “just keep staring at it” and yes – it “will” become second nature. Just keep staring at it.

      These days the correlations and relationships are harder than ever to decode so, if there was ever a time for you to “learn the ropes” I seriously can’t imagine it getting “more complex and challenging” than it is today.

      You’ll have this licked if / when things finally become a bit more clear / straight forward so – keep at it!

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