Following the BIG Money
By Sean Hyman Anyone who’s been trading Forex for any length of time will tell you it pays to know where the big money is headed.
In other words, you want to know where the biggest banks, hedge funds, and other market movers are investing their cash, so you can jump on their trades and grab profits when they do. (Trust me – it’s MUCH easier to ride a trend than try to fight the market.)
But the question is,: “How can a retail trader possibly know which currency pairs the big institutional traders are buying?”
Honestly, it’s not as difficult as it sounds. In fact, there are a couple of free tools that I’ve found out there. that allow you to do just that.
Comparing Apples to Apples…the First Free Trick
The best way I know to quantify currencies is on an “apples to apples basis.” In other words, you look at each currency pair in percentage terms (percentage winners/losers).
There’s a handy FREE website that ranks currency pairs that way. It’s called Net Dania. Go to www.netdania.com and click on their “Products” tab. Then go to the “NetStation – Beta” in the left hand column.
After that, just click on the huge “Click Here” button towards the middle of the screen and it will bring up their quote screen. You can click a few times on the “% Change” column and it will rank the currency pairs from the largest winners of the day to the largest losers on the day (in percentage terms).
You can see what I mean in the chart below…
Watch the % Change Column to See What the Big Money Is Buying
The clock resets at around 5pm EST each day and then the ranking begins. Once these pairs have been going some hours into the new day, you can usually see themes emerge. If you see pairs advance more than 1% in the biggest % winners column or fall over 1% in the biggest % losers at the bottom of the list, then you should start paying attention.
Where’s the Money Headed?
Once these pairs reach 1.5% or more gain (or loss on the day), look to see the “common threads” that emerge. For instance, see if a common pair is gaining or losing.
While the day is still young on the chart above, we can still see that the Aussie and U.S. dollars are stronger at the moment and that the euro is one of the bigger losers on the day. Now if this case still holds once these pairs pass the 1.5% mark on the day, then I would take this trend more seriously.
Once a clear pattern emerges, you can tell which currencies the big institutional traders are focusing on. Then you can hop on board with them and buy what they’re buying and sell short what they’re selling.
Once the pairs start to lose their momentum on the charts OR pass the 3-4% mark, I know it’s time to pull the plug on them for the day. Pairs rarely move over 3-4% in any given day. Also, if the charts start to slump over, you can tell the “big boys” may be starting to exit, and therefore you should do the same.
Now, a way to do this on a longer-term basis can be found by using the free tool at forexpeacearmy.com. You can go to their home page and click on their last tab to the right, “Forex Calendar and Tools.” Then choose the “Old Currency Strength Calc.”
To the right of this page you will find a relative strength calculator like the screen shot below. Check it out.
See the Biggest Winners/Biggest Losers on Any Time Frame!
Want to know which currencies are the strongest or weakest on the week, month, year (or any custom period?)? Simply choose that from the red-circled area above and then click on “show” button. It will tell you the biggest % gainers and losers on the time period you chose.
(Please keep in mind: I’m not endorsing these sites or their products. I’m simply giving you some examples of some places that offer free useful information like this.)
For instance, I was curious to know which currency was the biggest gainer so far for 2009 and which one was the biggest loser. As it turns out, my suspicion was right.
The Relative Strength Calculator Indicates the Carry Trade Is Back in Play
I’ve been talking about the carry trade reemerging recently. Well, look at what’s at the top and bottom of the list for this year. The higher yielding Aussie dollar is at the top and the yen is at the bottom!
So for this year, I know that the “pros” have been buying up the Aussie dollar more so than any other currency so far. Since it’s up over 8% and everything else is at least three percentage points below it, I know they have concentrated their positions in the Aussie.
Since the yen is down almost as much as the Aussie is up, I know that they are selling yen “in mass” once again. Again, sounds to me like the carry trade is back on – they’re buying Aussies and selling yen.
Therefore, I know that they’ve been huge buyers of the AUD/JPY pair in particular. So if they are focusing so much on this pair more than others…why shouldn’t I too?
So these are two more “tricks of the trade” that are free to the retail speculator. Whether you’re a short-term trader or a medium to longer-term trader, you each have a tool to fit your needs.
P.S. Looking for more tricks for Forex trading? Click here.