When we look at only one chart, its only half the picture. One charts gives us the ability to see the strength and weakness of one currency compared to another, but it isn't telling us the whole story. You should be looking at as many charts containing the currencies you are thinking of trading as possible. The true strength must be taken into account before risking your money.

The chart of the EURUSD is a good example to begin with.

The line reaching into the upper right hand corner has always been associated with strength. Usually you would think of a chart line on a stock going up or down. If the stock price goes up, that's good. The stock chart shows us the price in a simple matter. In forex, we have to change our thinking since the "spread charts" we use reflects prices going up or down in comparison to another currency. It only tells us which currency is stronger or weaker against the other individual currency.

One of fundamentals I teach is knowing the "true" strength of an individual currency. One chart isn't capable of telling us much. You need as much information as possible. The line going up on the EURUSD chart appears to show us the Euro is strengthening and the US dollar is getting weak. Are they? We are only getting part of the picture by looking at two individual currencies in comparison to each other. As with most technical analysis only systems, it is missing crucial information.

Only part of the story is being told. How are these currencies affected by other pairs? The MACD may be showing you a green signal to trade on the EURUSD, but what if the exact opposite signal is showing on other charts containing the Euro or US dollar? How much attention should they be given? What if an important economic number or announcement from the FOMC was coming out?

What ultimately determines whether the trade is going to be a profit or loss is actually knowing whether the US dollar is actually getting weak or not. Maybe the US dollar is neutral and the Euro is gaining strength. The Euro could be neutral and the US dollar getting weaker because of something. The signal you get from a technical indicator is only a signal. You need more to go on. Knowing more about the trade you are going to make and its place in the scheme of things is ultimately what is going to make you a profitable trader compared to the thousands of technical people getting the same buy signal you are on the MACD. ( Or any popular indicator)

During the trade, are you content to just sit there and let it go by itself, totally oblivious to a possible breaking news story or some other factor that could determine your trade results?

Two things I couldn't trade without is my news squawk box and my currency meters. The TrueTrend meters take the work out of looking at whacks of charts at once. Anyone can do it by opening charts and seeing if the currency in question is appearing weak or strong in any of them. The meter just does it for me automatically. It should be a staple for every forex trader.

If the strength of the US dollar is down on the EURUSD, USDJPY, USDCAD, USDCHF. Etc...then we can safely assume that the US dollar is weak and possibly getting weaker.

Seriously, how could you make a hundred thousand dollar decision with only the knowledge of its interaction with one other currency? You must find out whether your trade has a chance or not by using common sense. That MACD reading, is too sketchy. It may be a result of something unrelated to what's going on. We often see contradictions in technical indicators between pairs. Which one is to be believed? Only by knowing the fundamental aspects of what is going on in the bigger picture do we raise the odds in our favor.

Keep informed of news events, speeches and company announcements that could affect your trade. Make sure to keep an eye on other pairs that may have events on their own countries which could ultimately affect your trade. And folks, if you use my TrueTrend meter or not, keep your eye on the real strengths and weaknesses by observing other pairs and other markets. Get informed and keep your eyes and ears open.

Have a great day.

Tom-

http://tradetime.ca