One of the things I have always relied on in my forex trading is my background in futures trading. I started trading futures loooong before I even know about forex pairs. I traded currencies for years on the CME and eventually — at the prodding of a few good friends — decided to try my hand on this “new” market call the foreign exchange.
Along with me came my knowledge of the importance of time and price action and charting analysis…and what I call my “market pulse” which is defined as the markets that move the markets. I think there are a few key commodities markets that make the world go round:
- U.S. Dollar Index
- crude oil
- Dow Jones
- Continuous Commodity Index
- Fed Funds
Does this mean that along with your forex trading you must now be a futures trader too? You can of course choose to be if you want to…but what I am recommending you do is actually learn to see how those six markets I’ve listed effect your forex trading.
Think of it this way: If forex trading reflects the currencies of two countries and if a nation’s currency is reflective of their economy…we must at very least have an idea of what can effect the economy of each country. I believe most traders already know this and that’s because I see the way the markets react to news and data is but one aspect of what can effect a nation’s economy.
Consider the “market pulse” to be another part of that puzzle. The U.S. Dollar is the most important and the easiest to define. Each major pair trades against the dollar so it’s part of our job to understand where it’s heading because that’s going to effect the pair’s movement.
Think about it: What do the… EUR/USD … USD/JPY … GBP/USD … USD/CHF … USD/CAD … AUD/USD … NZD/USD all have in common?
The U.S. Dollar!
In the next update I will share a video of the “funnel mindset or approach” that I discussed in my first book back in 2004. I explain how and which markets to focus on.
In the meanwhile, here’s where the dollar is today:
Notice the support off the 80.00 psychological level. This is a stall (on the daily time frame) in an overall downtrend.