What is Forex Currency Index, how and why to use it!
What is a currency index:
An index of a currency is the trading volume or trading weight value of the currencies of other countries at a higher rate than the currencies of one country. Which has been the official forex base currency since 1973. So the highest base currency is the USD whose indexing calculation can be used to measure the value of the Ananya currency. So in today's currency index discussion the index currency is USD i.e. USD index USDX.
The USDX is calculated with the trading value against the USD of the currencies of 22 countries over a total of 8 major currencies.
The currencies are:
Canadian dollar (CAD)
Now the question is how to include 22 countries in 6 currencies? Yes, we know that there are 16 countries in the European zone, all of which have a single currency, the EUR, and the USD has a trending value against the single currency of Japan, Britain, Canada, Sweden and Switzerland. The simplest thing is to find out how much the USD is running against different currencies, which is called Indexing, since we will find out the index of USD, so it is called USDX.
USDX Currency Country:
Let's find out now which currencies are most involved for USDX i.e. how much of which currency is USDX for trading. Notice the image below:
The EUR is a huge part of the figure for USDX. In second place is Japan, followed by Great Britain. Thus you see a ratio of country-based currencies, with 50% of USD currency trading and more trading against the EUR. The remaining 30% off the chart is traded with unique currencies. The EUR plays the most important role for the USDX dollar and the USD is the most affected by the EUR. That is why USDX is called "Anti-Euro Index". The USDX is not calculated in the Forex market, but rather the large financial institutions that are there calculate the USDX to balance their trade or economy according to their needs. Since USDX is a global concept, many financial institutions use this formula to keep their economies afloat or to conduct business accordingly. One such institution is the Federal Reserve. They calculate the USDX as "trade-weighted U.S. dollar index". Hope you got a good idea about USDX.
USDX = EUR * 0.576 x JPY * 0.136 x GBP * 0.119 x CAD * 0.091 x SEK * 0.042 x CHF * 0.036
· When the USDX starts to fall, it means that the exchange traders are selling the USD
ীত Conversely when USDX starts to rise then exchange traders start to buy USD.
How to read USDX chart:
The USDX chart is a type of chart similar to the unique currency chart whose index is calculated on a daily and weekly basis. In this case the INDEX General value of 100.00 is calculated on a Base basis. For example, when the USDX goes up, the USD value increases. If USDX is 110 then USD value increases by 10%. Again when USDX falls to 90 then USD value decreases by 10%. Remember that since we are talking about USDX, its reflection will be around the USD currency, which is why I see the reflection of USDX rising or falling, but in my USD currency. So far the USDX level has reached a high of 160 and a low of 78.
As mentioned earlier, the trading weight of USD can be measured with a unique currency through the USD Index. Since the combination of many currencies is USDX. So it is possible to forex those currencies through USDX. The effect of the strong or weak behavior of the USDX chart plays an important role in the forecasting of unique currencies. Just as we use Support and Resistance, Candlestick pattern, technical analysis or various other strategies in the case of trend lines and price forecasts, the trending trends of those currencies can also be understood through the effect of USDX or the flow of this chart.
How to use: Since the index chart of USDX is EUR / USD, GBP / USD, USD / CHF, USD / JPY, USD / CAD based on trading volume. The trading strength of all these currencies against USD is USDX. So notice that when the trend is down in the EUR / USD daily chart, the trend is reversed in the USDX chart.
This time look at the EUR / USD Daily Chart
If you consider the above two charts, you will see that they are slightly opposite to each other. Because we already know that the main traded currency of the USDX chart is EUR so this currency hits the USDX chart more. Thus the next movement of the charts is predicted according to the country based and the traded volume of USD with their currency.
Currency co-relation needs to be discussed to clarify this issue. And different Currency Strength Indicators are used to get their Forecasts by combining unique currencies with USDX. Understanding the currency co-relation will get you magic on how 4-5 currency charts create a reverse trend against a USDX chart. Today I tried to give a good idea about USDX. We will discuss currency co-relation in detail in the future.
You can see the USDX chart in your Meta Trader, in which case you need to use two indicators.
First download the USDX indicators below from attached files:
1. Copy to your Meta trader \ experts \ indicators.
2. This time open Meta Trader and bring the Create $$ USDX indicator to the EUR / USD chart and enter the timeframe value in the time frame in which you want to view the USDX chart from the Input variable, 15M, 30M, 45M 1H as desired.
3. Go to Open offline from the File menu and bring the chart you created. (Originally written offline chart and it is but live chart)
- Download:USDX.zip 19 Kb
An optimal mindset is key to achieving efficient and enjoyable trades. With a volatile forex market, traders need a reliable mindset to manage all trading activities. By obtaining a strong and optimistic mental attitude, you can properly accomplish trades and vital tasks for success. Applying the right mindset allows a focused way of thinking that can minimize anxiety and reduce the chances of emotional trading. To have a healthy outlook towards the forex market, practice the best mindsets for optimal forex trading.What is a good mindset?A healthy trading mindset can make way for profitable output and a gratifying forex trading career. In any type of endeavor, a good mindset can inspire constant growth. It positively interprets experiences and drives the right actions to be taken. Because of this, forex traders must consider the best ways to apply a proactive and optimistic way of thinking.A proper mindset is dictated by personal belief, innate skill and instinctive diligence towards the task at hand. In forex trading, it is also driven by incoming information and education used to make decisions. Even with an unpredictable market, traders are still able to control their mindset to achieve the target goals. Whether during challenging trades or successful executions , a forex trader's way of thinking is key to enhance growth and success.For positivity and profit, apply the best mindsets for success in forex trading.Benefits of an optimal mindsetForex traders need to practice a positive and proactive way of thinking. Through a healthy mindset, you can go through trading activities and market challenges with a relaxed mind and full concentration. Here are the top benefits of having a good mindset while trading:* Provides a sense of control over skill and progress* Helps traders emotionally detach from challenging trades* Allows you to enhance your innate skill and develop others that are necessary for optimal trading* Encourages traders to further learn and grow from the forex market* Inspires better corrective planning especially when dealing with any setbacks"When we embrace a Get Better mindset, we welcome risk and are less afraid of failure, both key to personal development." -Heidi Grant Halvorson on 99UWhat are the best mindsets for forex trading?Mindsets can be cultivated to help you achieve the forex trading career you envision. Over time, these mindsets will encourage development and favorable results. With enough time and practice, a great mindset can be rooted into a trader's psychology. This will result in better forex trading character as well as performance. For success and wellbeing, practice the best mindsets for optimal forex trading:The Holistic Mindset* Focuses on the target goal and the overall forex trading journey* Takes into consideration all the possibilities of the forex market including its setbacks* Strengthens a way of thinking towards collective growth as well innate potential to succeedBeing holistic means seeing a person or a process as a whole. Having a holistic point of view is beneficial for traders who tend to be precise about every step of the trading process. With many learning stages and expected challenges in forex trading, practicing a holistic mindset can help you view the entirety of your trades. It describes a trader who sees both failure and accomplishment as part of the whole journey towards success.The Positive Mindset* Improves long-term mental health by minimizing anxiety* Inspires confidence in the planned strategy and personal capabilities* Provides an optimistic point of view when dealing with stressSuccessful trades are fueled by calculated strategies and optimistic mindsets. For powerful mental health, traders who practice a positive mindset are able to deal with the challenges of forex trading. Optimism is a valuable state of mind that can make a difference in performance and psychology. To have a lasting career in forex trade, learn as 7 experts share their secrets to achieve a positive mindset.The Proactive Mindset* Initiates problem solving especially after trading losses* Optimizes enhanced performance and strategy* Boosts eagerness to learn and move on from mistakes or unexpected market turnsApplying a proactive mindset is a powerful way to process the challenges from the forex market. Through a proactive mindset, forex traders can master the ways to deal with losses while always gaining insight from it. According to 2nd Skies Forex, it is vital to use the information obtained from every experience to achieve target goals. Those who apply a proactive way of thinking can take action while learning how to trade more efficiently. With a proactive mindset, you can gain the habit of accepting losses instead of dwelling on it.The Analytic Mindset* Improves analytical skill when reading charts or processing incoming news* Reduces impulsive trading* Promotes better decision making especially during executions as well as the planning stagesA forex trader with a highly analytical mindset efficiently evaluates information and uses this analysis to improve and optimize. The analysis is applied from all information or updates coming in. While being updated when forex trading, having an analytical mindset also drives better decision in every trading activities. Along with a proactive mindset, forex traders with an analytical way of thinking also ensures the habit to study every experience and taking away lessons from it.The Business Mindset* Strengthens management of skills, tasks, as well as time* Minimizes the risk of losses when steering away from emotional trading* Allows traders to approach tradingThis type of outlook describes a trader who sees forex trading as a business. As much as it is a personal endeavor, forex trading is a business venture. Having a business mindset can allow traders to explore the activities of forex trading with discipline. In the end, this mindset conditions all actions towards more calculated decisions like any businessman would. It prevents emotional trading and initiates constructive processes. Aside from this, applying a business mindset also promotes self-worth with forex trading as a personal investment.Always look towards success. Use a growth mindset to drive progress and optimal trading.The Steady Growth Mindset* Increases the capability to master skills for better performance* Expedites the learning curve especially for those new to trading* Stimulates the habit to optimize and grow in every step of the processThere is a great advantage for traders who are naturally adept to trade forex. In a successful trading journey, being knowledgeable or market savvy is just a start-off point. Forex traders must have a growth oriented mindset to optimize systems and deliver consistently profitable trades. In many aspects of work and personal undertakings, a growth mindset is one of the best mindsets to ensure progress. With a growth mindset, traders can build more dedication and the feeling of fulfillment towards trading.Avoid a fixed mindset!The forex market evolves by the minute. To keep up with its volatile nature, traders must be open and adaptable. Because of this, it is important for forex traders to avoid a fixed mindset. Whether it is a fixed mindset that believes progress cannot be attained or failure will not happen, traders must always focus on growth. According to Psychlopaedia, a fixed mindset assumes that character, intelligence, and abilities cannot be changed. To grow towards success, forex traders should believe in personal potential and the possibilities of the market.By avoiding a fixed mindset, you can create a trading career that is always optimizing. Through a strong and resilient mindset, any challenges can be faced with stable and disciplined decision making. At the same time, traders should also be ready to work hard and stay diligent.Best mindsets for quality tradesA proper mindset can build a thriving career in forex trading. In a market full of possibilities, forex traders should attain a good mindset to succeed. Eventually, the mindset you practice will become as valuable as the strategy you develop. While analysing data or performing an execution, an optimal mindset can steer you through your calculated strategy without additional stress. For successful trades and a healthy well being, be aware of your thought process to achieve powerful forex trading mindsets.
In this thread, you will learn that what could be the possible capital building techniques in getting success in Forex business. The capital building is very much demanded thing and if we are a newbie then we must keep in mind that capital building is very much important if we really want to make a good success and high rank in Forex business. It is a true reality that everyone of us wants to build big capital in order to make good money in the forex market.1.Risk management. If we are trading with a good investment in the forex market then we should always make a deep study about every risk in every opening position in the forex market. Because if we will be able to manage our risk then we will surely able to build the big capital.2.Small lot size trading. A good trader always uses the small lot size because this is the biggest mistake when we start to trade with a big lot and that's why we become unable to manage our trades just because of the big lot.3. Evaluating the news data.If we really want to collect the big money from the forex market then we should always evaluate the news data when it is released in order to determine the market for the higher money.4. Planning before trading. A trade can never be made successful until a great study is behind it done. Because planing is such a tool that give us strong decision power to handling our trades in the forex market.5.Reviewing the trading strategy.First of all, we should study and apply every new trading strategy in our trading in order to study the good result from that specific strategy we want to use. When a trader starts analyzing the trading strategy then he is really able to make good success in the forex business.If you just want to share your own opinion about this then never hesitate just add to this content so the rest of the learner may also learn something new about building the capital techniques.
Biases are like shortcuts for your brain. They can have an unusually large impact on how you make decisions in your everyday life, but particularly when it comes to your trading.To put it simply, your brain has a way of conserving energy by making fast decisions or mental shortcuts in what are known as heuristics.The problem is, we often don't even know that we have them. Even if we know about them, when it comes to trading, we have to work hard to challenge our reasoning behind making our decisions.As common as these biases are, we specifically want to focus on what are called "cognitive" and "emotional" biases. These have been studied across psychology, economics and now into the mainstream of what is called "behavioural" finance.Having seen these in my own trading and from viewing successful and less than successful traders, I thought it was worth highlighting 7 key biases that can (and likely will) impact your own trading. The question is, how many of these have you been a victim of and what can you do to try to prevent them?1) Confirmation biasConfirmation bias means we tend to seek out information that we agree with.Ask yourself this question: How many times have you placed a trade then sat there and watched it go against you? OK, that happens a lot, no doubt, but then how often have you then gone out and sought information or headlines or "expert" advice about that currency pair which tells you why you were right and to just stick with it?I remember many years ago, when I first started trading, I placed a fairly large trade on oil (I really couldn't tell you now why I made this trade - I had no idea what I was doing and it was too big for my account... Forgive me, I was just a beginner!) but as soon as it went against me I frantically typed "Oil" into Google, and just like that I was looking for any reason to support my original opinion on why oil was due to go up.To my joy, there was so and so from XYZ Investment bank comforting me with a view that supported my own opinion or perspective. They talked about an undersupply in the market and that oil was sure to go higher. It was 2am by this stage as I watched my whole account go into jeopardy. This valuable advice that I sought helped me nurse myself back to sleep.I, of course, deviously chose not to click on any article that might tell me I was wrong - I only sought out the information I wanted to hear or see.Let's just say that the oil trade I placed went as well as a parachute made of concrete! (And my account was stopped out!).2) The Endowment effect / Sunk cost fallacyThe endowment effect means we tend to value something more after we own it for a period of time.In a now classic study, students were given a mug and were asked how much they would sell it for an equally valued pen as an alternative. The experimenters found that the median price for which they would sell was twice as much as they were willing to pay to acquire the mug.Because of our aversion to losses, this can have a drastic effect on our trading success. We place a trade on EURUSD, which we were targeting a profit or loss of only 50 pips for. Yet when the trade starts to go against us, what's the first thing we often do? Move our stop loss further out because we "just know it's going to turn around." We tell ourselves stories like "The euro is cheap here, it'll definitely turn around."Because we are committed to this trade (and this is somewhat related to the confirmation bias) we value it more just because we own it and because we have already invested in it, it becomes a "sunk cost".3) Recency bias aka availability heuristicThe "recency bias" or "recency effect" essentially tells us that our recent experience can become the baseline for what is going to happen in the future.This could be through our recent trade performance such as a recent win or loss impacting us heavily or a certain piece of news or information we recently heard forming the basis for our decision making.For example, if I was to give you a list of items on a shopping list and then ask you to recall it, chances are you will tend to only really remember those items at the end of the list.This can have seriously dangerous consequences for us as traders as it undermines our ability to form an objective decision on a trade. Why? Because we tend to focus too much on our most recent trade or information we found as a barometer for how the next trade will go.Let's say you had a losing trade whereby you promised you'd never risk such a great amount of your capital again. You might be a little shy and dial back the risk a bit too much, or you could be the opposite and think you're George Soros, betting the whole house on the next trade since you just went so poorly on the last. Your thinking is this would get you back to where you were prior to your last trade.The other way it can creep into your trading is through recent information impacting your decision on why to take a new trade. It might be that you see a brief news headline stating ABC bank's research on "why the dollar is going to dive this week" earlier in the day and tend to argue with yourself later that night why you think it's a good idea to follow that trade. I know what you might be thinking: "It's just a headline… I'd never let this happen to me". However, our brain has a lazy way of taking what it knows and ignoring the rest (as we have learned above).We also have a tendency of the fear of missing out (FOMO as it's popularly known today) and with this new information we feel we must put something into action!How to overcome the bias: As difficult as it may be, you have to stop and count to three and ask yourself a few questions.These could be "why am I making this trade?", "Does it fit in with what I know?", "What am I missing here?", "Could there be a bias at play affecting my decision making?", or "How can I look at this objectively rather than emotionally and not let my recent trades/ideas affect my judgement?"4) "The Gambler's fallacy"The gambler's fallacy is where we believe that future probabilities are altered by previous events when in actual fact they're unchanged.It is called the "gamblers fallacy" due to the often watched scene of a table game at the casino (the spinning wheel of the roulette table is a good one) as it landing on black over and over. People see this and think 'it couldn't possibly do that again' and try to bet against it.As traders and human beings, we tend to believe that if something happens multiple times, it couldn't happen again. We ignore simple probability.Let's say the S&P500 has rallied five days in a row. We place a trade in the belief that "it must be due for a correction" only to watch it rally and stop us out of our position.It is important to look at the original reasons you wish to get into the trade. Just because something has moved up or down in a continuous fashion, it does not mean the market will immediately reverse its behaviour and go the other way.5) The Bandwagon effectThe "bandwagon effect" is our inclination to do or believe things just because others do the same. Also known as "groupthink" or "herd behaviour", it can lead to having a serious trading hangover; ask yourself an odd question like "why on earth did I go long the EURCHF last night?"A recent classic example was the first rate rise since 2008 by the Federal Reserve in December of 2015. Following the event, commentators and fund managers surveyed by Bank of America-Merrill Lynch said "buying US Dollars was the biggest one-way trade of 2016" and going against this trade would be like "the widow maker".The majority of respondents and the general market consensus believed that as the Federal Reserve said they expected 4 rate rises in 2016 then the USD was surely going to rally.Following that long USD trade would have led to some disastrous results. In fact, USDJPY fell from as high as 121 to 101 (an impressive 2000 pip fall since December) and as at the time of writing the Federal Reserve has not raised interest rates since.Be careful of those bandwagons!6) Hindsight biasYou could also call this one the "I knew it all along" effect. How many times have you heard someone say those words in life (not to mention in trading)?We tend to believe that (of course much later than the event itself) that the onset of a past event was entirely predictable and obvious, whereas during the event we were not able to predict it.Due to another bias (which we will not cover today) called "narrative bias" we tend to want to assign a narrative or a "story" to an event that allows us to believe that events are predictable and that we can somewhat predict or control the future. It allows us to try to make sense of the world around us.It is now common to find stories of those who predicted the great recession and US housing bubble in hindsight. They become legends or "oracles" that people look to in the future for advice, believing they will again be able to foresee any future turmoil.Why is this so important? The hindsight bias leads us into perhaps one of the most dangerous mindsets which is that of overconfidence, our final bias and probably one that is less hidden than the others.7) Overconfidence effectOverconfidence as a trader allows us to believe that we are superior in our trading, which ultimately leads to hubris and poor decision making.Whether it's overconfidence on when to trade, what to trade (telling ourselves "sure I could normally trade AUDUSD, but why couldn't I also be good at trading the South African rand?") and how to trade a certain product.We trade larger than we should, hold losers for longer than we should, relax our own risk management policy, become arrogant or complacent in our trading, and this all leads to capital losses.What do I do now?OK, so I might have scared you. You are now jumping at shadows and questioning your own trading decisions, believing you have all these secret, hidden disadvantages that you didn't have until 10 minutes ago.Do not worry, biases can never be completely avoided. But we can work hard on challenging our opinions in order to make us more successful. Sometimes it's just taking the time to stop and think.To help you along the way, we've created a possible checklist for making better decisions in your trading.So stop, take a breath and ask yourself these 7 questions before you place your next trade.1. Why am I taking this trade?2. How strong is the evidence behind my decision to trade?3. Could I be missing something?4. Is there evidence to consider for the opposite side?5. Has the recency of information I've learned influenced my decision? If so, how much?6. Is this trade following the general consensus of the crowd? If so, is that a good thing?7. If none of questions 1-6 apply, then could any of the other biases above be at work?