How to find new pairs for trade...

By nature, traders, forex or otherwise, can be creatures of habit. That is if we find something that works, we stick with it until it stops working. As it pertains to forex trading, this includes the pairs we trade. Many forex traders get into the game and focus on just one or two of the major pairs. This strategy is acceptable for beginners, but as your acumen increases, it might be a good idea to start looking for other pairs to make some pips. Rookie forex traders often focus on the Euro/US dollar (EUR/USD) and maybe one other major pair like the British pound/dollar (GBP/USD), but if you’re going to trade forex, you should be aware all of the opportunities available to you.

Two major pairs that tend to fall under the radar of a lot of forex traders are the Australian dollar/US dollar (AUD/USD) and New Zealand dollar/US dollar (NZD/USD). This is a shame because both the Aussie dollar and New Zealand dollar (also known as the kiwi) are two of most volatile currencies in the market and when traded properly, they can make traders a lot of pips. Your first order of business should be ensuring that your forex broker gives you access to these pairs. Most of the top forex brokers will as these are major pairs, but better to be safe than sorry.

Under current market conditions, the Aussie dollar and kiwi are definitely worth a look. Remember that as global equities rise, particularly US and Chinese stocks, risk appetite in the forex market increases and that means forex investors flee safe-haven currencies like the US dollar, Japanese yen and Swiss franc for riskier, higher-yielding assets like the Aussie dollar and kiwi.

In fact, several currency analysis reports have noted recently that the Aussie dollar is the most fundamentally sound of all the major currencies. Australia’s economy didn’t suffer during the global slowdown at the level that other major economies did and the Reserve Bank of Australia kept interest rates relatively high, which has served to bolster the Aussie dollar’s fortunes. The Aussie dollar is also a great for forex traders to get exposure to gold because as gold prices rise, so does the Aussie dollar because Australia is one of the largest exporters of gold in the world.

The kiwi is also worth watching due to its intense correlation to stock prices. You can bet that if the S&P 500 is making new advances the kiwi is performing well against the US dollar. The kiwi recently touched a year-to-date high against the greenback, but couldn’t hold the gains, but the NZD/USD should still be on your watch list either for a long trade or an easy short if stocks start to retreat. Kiwi also rises with commodities demand, even though New Zealand is not known for production or exports of any one commodity in particular.

The bottom line is if you’re going to trade forex, you should keep all of your options open and with current market conditions conducive to a bull run in the Aussie dollar, that currency should be at the top of your list.

How to Trade Gold and USD Correlations??

Almost all forex traders know that Gold and US Dollar markets move against each others. It means when gold price goes down, USD goes up and visa versa. Therefore USD and gold are highly correlated and their correlation is even stronger and more reliable than the correlation that different currency pairs have. Now the question is if this strong correlation can be used in trading either gold or USD or both. The answer is yes. Gold and USD prices move against each other. When gold forms a buy signal, USD forms a sell signal, but the good thing is that sometimes the signals that one of them forms is ahead of the other one and so it can be used as a leading indicator to trade the other one.

The below chart shows the USD and gold price at the same time. As you see there are many cases that a support/resistance level breakout in gold is followed by a resistance/support level breakout on USD and visa versa. There are also many cases that they form an opposite signal almost at the same time, but even in those cases their signals can be used as confirmation to trade either gold or USD.



How to Trade Gold and USD Using the Gold-USD Correlation?

First, you have to open both gold and a USD cross currency pair (like USD-CHF) price charts on your trading platform at the same time. Both of the price charts have to be set to the same time frame, for example one hour. Then you have to analyze both of the price charts, based on the trading system that you have. For example I use support/resistance breakout. So all I have to do is finding a support/resistance line on one of the gold or USD-CHF price charts and waiting for the breakouts. Sometimes you can find a resistance line on gold, but you can not see any visible support line on USD-CHF. However, the resistance breakout on gold will be followed by a sell signal on USD-CHF and so when gold goes up, USD-CHF goes down. The resistance breakout on gold can be used as the confirmation of the sell signal on USD-CHF and visa versa. So you can trade any of them that you like, while you have a confirmation from the other one. Lets look at some examples.

On the below chart, a resistance breakout and so a buy signal formed on the gold one hour chart. While there is no special support line on USD-CHF price chart, it formed a strong sell signal by the candlesticks and went down strongly. Trade setups like this occur almost everyday on different time frames.



The below chart shows a case that a support breakout and so a sell signal formed on gold price chart, several hours before the resistance breakout on USD-CHF. A support breakout formed on gold 4 hours chart by 2010.01.12 20:00 candlestick. Although it went up to retest the broken support line, it finally formed a sell signal below the broken support line and also the Bollinger Middle Band by 2010.01.14 4:00 candlestick and started going down strongly. At the same time USD-CHF started going up too, but it broke above its only visible resistance line on the price chart, about 4 days after that.