Once you know chances will be wrong if only analyzing one Currency, then you try to analyze other currencies to find the perfect match. Say you have analyzed the Euro and when it is being weakened, now you're trying to figure out the currency is being strong, or in this case being strengthened against almost all major currencies. For example when it was strong yen. Then you can take the decision not to sell the pair EUR / USD, but sell EUR / JPY.
But it does not mean you must be right and profit, it's just a possibility to correct and Profits will be greater than if you sell the EUR / USD. If any circumstances change and no longer weak EUR against the USD, GBP and AUD, for JPY is still more powerful, your position will be safe and the price will continue moving down.
So, with a focus on strength and weakness both sides of the currency pair, you will be able to increase the possibility to take the correct position. Then, how?
Sorting out a strong currency and weak
This method is often used by the big brokers and traders. Often called the 'strong-weak analysis', a process of isolating the most powerful currency of the weakest. The way this process is not detailed in this article, but the outline is to focus on the USD as a reference. We measure the movement of each currency against the USD so it looks basic strength of each currency individually.
For example, if the EUR / USD is rising to fast, but at the same time GBP / USD moves down. This shows that at that time was much stronger than the EUR USD, and the USD was stronger than the GBP. From this simple analysis can logically conclude that buy the EUR / USD likely to be more profitable than buy EUR / USD.
As already mentioned, we can measure the movement of each currency against the USD as the benchmark, and compare them to find the most powerful currency and the weakest. Here is a comparison of data taken on July 13, 2012
Shown in the above data, the NZD / USD 92 pips against the USD superior. Price NZD / USD when it was 0.7956. Percentage changes are: (0.0092 / 0.7956) x 100% = 1,156%. Superior NZD 1,156% against the USD, or USD 1,156% loss against the NZD. Similarly, a loss USD 0.177% against the JPY. The following table sequences advantage (or strength) of each currency against the USD:
First: NZD
Second: AUD
Third: GBP
Fourth: CAD
Fifth: CHF
Sixth: EUR
Seventh: JPY
Eighth: USD
It appears that eight of the currency strengthened against the USD, and this means the USD was the weakest currency in the time period of the analysis.
