The overall forex market generally trends more than the overall 澳洲幸运5开奖号码历史查询:stock market. Why? The 澳洲幸运5开奖号码历史查询:equity market, which is really a market of many individual stocks, is governed by the micro-dynamics of particular companies. The 澳洲幸运5开奖号码历史查询:forex market, on the other hand, is driven by 澳洲幸运5开奖号码历史查询:macroeconomic trends that can sometim๊es t𒅌ake years to play out.

These trends best manifest themselves through the 澳洲幸运5开奖号码历史查询:major pairs and the commodity block currencies. Here we take a look at these trends, examining where and why they occur. Then we also look at what types of pairs offer the best opportunities for 澳洲幸运5开奖号码历史查询:range-bound trading.

The Major Currency Pairs

There are only four major currency pairs in f🦂orex, which makes it quite easy to follow the market. They are:

• EUR/USD - euro / U.S. dollar
• USD/JPY - U.S. dollar / Japanese yen
• GBP/USD - British pound / U.S. dollar
• USD/CHF - U.S. dollar / Swiss franc

It is understandable why the United States, the 澳洲幸运5开奖号码历史查询:European Union, and Japan would have the 澳洲幸运5开奖号码历史查询:most active and liquid currencies in the world, but why the United Kingdom? After all, as of 2020, India has a larger GDP ($2.65 trillion versus $2.63 trillion for the United Kingdom), while Russia's GDP ($1.57 trillion) and Brazil's GDP ($2.05 trillion) almost match U.K.'s total economic production.

The explanation, which applies to much of the forex market, is tradition. The U.K. was the first economy in the world to develop sophisticated 澳洲幸运5开奖号码历史查询:capital markets and at one time it was the British pound, not the U.S. dollar, that served as the world's 澳洲幸运5开奖号码历史查询:reserve currency. Because of this legacy and because of London's primacy as the center of global forex dealing, the pound is still considered one of 澳洲幸运5开奖号码历史查询:the major currencies of the world.

The Swiss franc, on the other hand, takes its place amongst the four majors because of Switzerland's famed neutrality and fiscal prudence. At one time the Swiss franc was 40% backed by gold, but to many traders in the forex market it is still known as "liquid gold". In times of turmoil or economic 澳洲幸运5开奖号码历史查询:stagflation, traders turn to the Swiss franc as a safe-haven currency.

The largest major pair—in fact, the single most liquid 澳洲幸运5开奖号码历史查询:financial instrument in the world—is the EUR/USD. This pair trades almost $1 trillion per day of 澳洲幸运5开奖号码历史查询:notional value, from Tokyo to London and New York, 24 hours a day, five days a week. The two currencies represent the two largest economic entities in the world: the U.S. with an annual GDP of $21.43 trillion and the Eurozone with a GDP of about $13,335.84 billion.

Although U.S. 澳洲幸运5开奖号码历史查询:economic growth has been far better than that of the Eurozone (3.1% for the U.S. vs.1.6% for the Eurozone), the Eurozone economy generates net trade surpluses while the U.S. runs chronic 澳洲幸运5开奖号码历史查询:trade deficits. The superior balance-sheet position of the Eurozone—and the sheer size of the Eurozone economy—has made the euro an attractive alternative reserve currency to the dollar. As such, many 澳洲幸运5开奖号码历史查询:central banks—including Russia, Brazil, and South Korea—have diversified some of their reserves into the euro. Clearly, this 澳洲幸运5开奖号码历史查询:diversification process has taken time as do many of the events or shifts that affect the forex market. That is why one of the key attributes of successful 澳洲幸运5开奖号码历史查询:trend trading in forex is a longer-term outlook.

Observing the Significance of the Long Term

To see the importance of this longer-term outlook, take a look at the figures below, which both use a three-澳洲幸运5开奖号码历史查询:simple-moving-average (three-SMA) filter.

The three-SMA filter is a good way to gauge the 澳洲幸运5开奖号码历史查询:strength of a trend. The basic premise of this filter is that if the short-term trend (sev𝓰en-day SMA), the intermediate-term trend (20-day SMA), and the long-term trend (65-day SMA) are all aligned in one direction, then the trend is strong.

Some traders may wonder why we use the 65 SMA. The truthful answer is that we picked up this idea from John Carter, a futures trader and educator, as these were the values he used. But the importance of the three-SMA filter not does lie in the specific SMA values, but rather in the interplay of the short-, intermediate-, and long-term price trends provided by the SMAs. As long as you use reasonable proxies for🅰 each of these trends, the three-SMA filter will provide valuable analysis.

Looking at the EUR/USD from two different ti🔜me perspectives, we can see how different the trend signals can be. Figure 1 displays the daily price action for the mo🔴nths of March, April, and May 2005, which shows choppy movement with a clear bearish bias. Figure 2, however, charts the weekly data for all of 2003, 2004 and 2005, and paints a very different picture. According to Figure 2, EUR/USD remains in a clear uptrend despite some very sharp corrections along the way.

澳洲幸运5开奖号码历史查询:Warren Buffett, the famous investor who is well known for making long-term trend trades, has been heavily criticized for holding onto his massive long EUR/USD position which has suffered some losses along the way. But looking at ꦆthe formation in Figure 2, however, it🉐 becomes much clearer why Buffett may have the last laugh.

Commodity Block Currencies

The three most liquid 澳洲幸运5开奖号码历史查询:commodity currencies in forex markets are USD/CAD, AUD/USD, and NZD/USD. The Canadian dollar is affectionately known as the "loonie", the Australian dollar as the "Aussie," and the New Zealand Dollar as the "kiwi". These three nations are tremendou♊s exporters of commodities and often trend very strongly in concert with the demand for each of their primary export commodity.

For instance, take a look at Figure 3, which shows the relationship between the Canadian dollar and prices of 澳洲幸运5开奖号码历史查询:crude oil. Canada is the largest exporter of oil to the U.S. and alღmost 10% of Canada's GDP comprises the energy exploration sector. The USD/CAD trades inversely, so Canadian dollar strength creates a downtrend ܫin the pair.

Although Australia does not have many oil reserves, the country is a very rich source of 澳洲幸运5开奖号码历史查询:precious metals and is the second-largest exporter of gold in the world. In Figure 4 we can see the relations♍hip between the Australian ꧋dollar and gold.

Crosses Are Best for Range

In contrast to the majors and commodity block currencies, both of which offer traders the strongest and longest trending opportunities, 澳洲幸运5开奖号码历史查询:currency crosses present the best range-bound trades. In forex, crosses are defined as currency pairs that do not have the USD as part of the pairing. The EUR/CHF is one such cross, and it has been known to be perhaps the best range-bound pair to trade. One of the reasons is, of course, that there is very little difference between the 澳洲幸运5开奖号码历史查询:growth rates of Switzerland and the European Union. Both regions run current-account surpluses anꦛd adhere to fiscally conservative policies.

One 澳洲幸运5开奖号码历史查询:strategy for range traders is to determine the parameters of the range for the pair, divide these parameters by a median line, and simply buy below the median and sell above it. The parameters of the range are determined by the 🉐high and low between which the prices fluctuate over a given period. For example in EUR/CHF, range traders could, for the period between May 2004 to Apr 2005, establish 1.5550 as the top and 1.5050 as the bottom of the rꦯange, with a 1.5300 median line demarcating the buy and sell zones. (See below).

Remember range traders are agnostic about direction. They simply want to sell relatively 澳洲幸运5开奖号码历史查询:overbought conditions and buy relatively oversold conditions.

Cross currencies are so attractive for the range-bound strategy because they represent currency pairs from culturally and economically similar countries; imbalances between thes🐭e currencies therefore often return to equilibrium. It is hard to fathom, for instance, that Switzerland would go into a depression while the rest of Europe merrily ex✅pands.

The same sort of tendency toward 澳洲幸运5开奖号码历史查询:equilibrium, however, cannot be said for stocks of similar nature. It is quite easy to imagine how, say, General Motors could file for 澳洲幸运5开奖号码历史查询:bankruptcy even while Ford and Chrysler continue to do business. Because currencies represent macroeconomic forces, they are not as susceptible as individual company stocks to risks that occur on the micro-level. Currencies are therefore much safer ꦏto range trade.

Nevertheless, risk is present in all 澳洲幸运5开奖号码历史查询:speculation, and traders should never range trade any pair without a stop loss. A reasonable strategy is to employ a stop at half the 澳洲幸运5开奖号码历史查询:amplitude of the total range. In the case of🅺 the EUR/CHF range we defined in Figure 5, the stop would be at 250 pips above the high and 250 below the low. In other words, if this pair reached 1.5800 or 1.4800, the trader should stop themselves out of the trade because the range would most likely have been broken.

Interest Rates—the Final Piece of the Puzzle

While EUR/CHF has a relatively tight range of 500 pips over the year—shown in Figure 5—a pair like GBP/JPY has a far larg⛎er range, at 1800 pips—shown in Figure🌱 6. Interest rates are the reason there's a difference.

The 澳洲幸运5开奖号码历史查询:interest rate differential between two countries affects the 澳洲幸运5开奖号码历史查询:trading range of their currency pairs. For the period represented in Figure 5, Switzerland has an interest rate of 75 澳洲幸运5开奖号码历史查询:basis points (bps) and Eurozone rates are 200 bps, creating a differential of only 125 bps. However, for the period represented in Figure 6, however, the interest rates in the U.K are at 475 bps while in Japan—which is gripped by 澳洲幸运5开奖号码历史查询:deflation—rates are 0 bps, making a whopping 475 bps differential between the two countries. The 澳洲幸运5开奖号码历史查询:rule of thumb in forex is the larger the interest rate dif♛ferential, the more 🅺volatile the pair.

To further demonstrate the relationship between trading ranges and interest rates, the following is a table of various crosses, their interest rate differentials, and the maximum pip movement ཧfrom hi෴gh to low over the period from May 2004 to May 2005.

While the relationship is not perfect, it is certainly substantial. Note how pairs with wider interest rate spreads typically trade in larger ranges. Therefore, when contemplating range 澳洲幸运5开奖号码历史查询:trading strategies in forex, traders must be keenly aware of rate differentials and adjust for 澳洲幸运5开奖号码历史查询:volatility accordingly. ༺Failure to take intere♌st rate differential into account could turn potentially profitable range ideas into losing propositions.

The forex market is incredibly flexible, accommodating both trend and range traders, but as with success in🅷 any enterprise, proper knowledge is key.