Why to Trade Forex Leaders and Laggards

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Why Trade Forex Leaders and Laggards

We all know forex pairs aren’t equal in performance. Some greatly outperform others, while others do almost nothing, and yet others just seem to keep falling no matter what. The greatest trading opportunities lie in those forex pairs with the strongest trends (up or down). This is because it is easy to choose the direction to trade in (with the trend!) and the moves in the trending direction are typically fast and aggressive which means you are in-the-money more quickly (and stay there longer) than with a pair that is barely moving.

Forex Leaders and Laggards

I generally keep about 10 charts open, showing different forex pairs, so I can quickly assess how different pairs are moving on different time frames. This allows me to quickly determine which pairs I want to trade. For long positions I want pairs that are moving aggressively higher. For short trades I want pairs that moving aggressively lower.

Another way to spot which pairs are leaders and laggards is too use a relative strength chart.

Figure 1. Relative Strength Chart

Basically we want to look for pairs that near the top or bottom of the chart. For example, the JPY is at the bottom, while the CAD and AUD are near the top. Therefore, the USDCAD, AUDUSD and USDJPY are likely moving quite well.

Another way to look for “action” is to monitor volatility. Volatility doesn’t tell us much about the trend, just how much things are moving.

Figure 2. Volatility Studies

Some pairs are almost always more volatile than others, but you can study how the volatility one pair is changing overtime. When a pair has increasing volatility, something is going on and you may want to take part in the moves. When a pair has decreasing volatility, traders are showing less concern for the pair (although that doesn’t mean there isn’t a trend, it just isn’t moving aggressively).

Figure 3. Volatility Over Time

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For all these indicators, whether it be volatility or relative strength, you’ll want to monitor it on the time-frame you trade on. If day trading, focus on shorter-term studies.

Why Does It Matter?

Many new day traders make the mistake of thinking they can trade every day and every pair the same. Unfortunately, this is unlikely to work out. Pairs have different tendencies, and even days of the week have different tendencies (see daily forex stats page link above). When there is more movement it is typically easier to move into the money quicker, and stay there for longer, because traders are aggressively pushing the price in one direction.

When markets are listless and see-sawing back and forth, trades become more random. There is less room for error because the price is zigzagging in small moves making it harder to stay in the money.

If you like to trade only one asset, wait for the good opportunities when there is movement and the amount of price action is giving you more room for error. Avoid trading during times when there is little room for error because the price action is so tight.

If you trade multiple forex pairs, focus on the ones providing the most opportunity. By that I mean the forex pairs that are moving with aggression. You’ll have more margin for error because the trades are typically going to move into the money quicker, and stay there longer, than forex pairs that don’t have much going on in terms of price action.

US Stocks: Bullish catch up for laggards BAC, C & CAT post trade deal

Kelvin Wong December 13, 2020 4:40 AM

Global financial markets are in risk on mode after US President Trump has agreed to the terms of the U.S-China Phase One “mini trade deal” that will put on hold the additional 15% tariffs on US$160 billion worth of China products that are scheduled to take place on 15 Dec. In return, China will increase significantly the purchase of U.S agricultural products and step up commitments to do more to stop intellectual property theft. In additional, both sides have agreed to roll back “certain portions” of existing tariffs in place.

In additional, the “risk on” animal spirts have also been reinforced by the latest round of U.S. Federal Reserve’s repo operations to add additional liquidity of US$365 billion into the short-term funding market through Jan 2020 to ease any potential freeze in liquidity as we head into the crucial year end period.

In a nutshell, risk assets are being supported by these “events” at least in the medium-term. We have covered much ground on the major stock indices and explained from a technical analysis perspective why the bulls are still in control plus highlighting the continuation of the outperformance of the high beta Nasdaq 100, Technology and Semiconductor sectors that are leading the “bull convoy”.

Right now, we will be highlighting some laggard stocks that can see potential rotation into the coming weeks given their respective upside momentum has just started from a “lower base”.

Relative Strength/Ratio charts

  • The ratio chart of the laggards; Financial and Industrials have started to see signs of outperformance of against the market (S&P 500).
  • The Financials / S&P 500 ratio has staged a bullish breakout after it has formed a base since Mar 2020.
  • The Industrials / S&P 500 ratio has started to form and rebound from the support of its major 12-momth basing formation in place since Dec 2020.

Movement of US Treasury 10-year yield with Industrials & Financials

  • The continuation of an upswing of “higher lows” seen in the U.S. Treasure (TNote) 10-year yield since 04 Sep 2020 is also supporting the on-going upside movement seen in the Industrials and Financial sectors

Bank of America (BAC) – Impulsive up move remains in progress

click to enlarge chart

  • We had highlighted BAC in our earlier report dated on 22 Oct 2020 (click here for a recap).
  • Key technical elements remain positive, we have adjusted the key medium-term pivotal support higher to 30.90 from 30.30 for a further potential up move to target the next resistances at 36.30 and 39.50/40.00.
  • On the other hand, a daily close below 30.90 invalidates the bullish bias for a corrective decline to test the major support at 26.60 (also the lower boundary of an ascending channel from 11 Feb 2020 low).

Citigroup (C) – Continues to inch higher after bullish breakout from major descending resistance

click to enlarge chart

  • C has started to evolve within an ascending channel in place since 26 Dec 2020 low. Bullish bias in any dips above 70.40 key medium-term pivotal support for a further potential up move to target 80.70 and 85.30 next.
  • On the other hand, a daily close below 70.40 invalidates the bullish breakout scenario for a corrective decline towards the next support at 60.30.

Caterpillar Inc (CAT) – Moving higher after bullish breakout from 10-month descending resistance

click to enlarge chart

  • Bullish bias in any dips above 134.90 key medium-term pivotal support for a further potential push up to target the next resistance at 159.30/161.35 (also a Fibonacci expansion/retracement cluster).
  • On the other hand, a daily close below 134.90 invalidates the bullish breakout for corrective decline back to retest the major range support at 117.25/112.65.

Charts are from eSignal

Related analysis:

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

The Latest FX Leaders (and Laggards)

The Australian dollar has come under pressure following the latest RBA policy announcement, while the euro is pointing higher on the heels of more promising Spanish unemployment data.

The Reserve Bank of Australia (RBA) elected to keep rates on hold at 2.75%, but its dovish stance put pressure on AUDUSD throughout the Asian and early-European trading sessions, sending the pair below 96.50 as the night progressed.

The RBA remained stationary for now, but in its monthly policy statement, RBA Governor Glenn Stevens noted, “At today’s meeting, the Board judged that the easier financial conditions now in place will contribute to a strengthening of growth over time, consistent with achieving the inflation target. It decided that the stance of monetary policy remained appropriate for the time being. The Board also judged that the inflation outlook, as currently assessed, may provide some scope for further easing, should that be required to support demand.”

Furthermore, despite the significant depreciation in the Australian dollar (AUD), the RBA continued to jawbone the exchange rate lower, stating that, “The exchange rate has depreciated since the previous Board meeting, although, as the Board has noted for some time, it remains high considering the decline in export prices that has taken place over the past year and a half.”

The overall tone of the RBA statement put pressure on the Aussie, as it suggested that the central bank remains open to further rate cuts. Furthermore, it continues to pressure the exchange rate lower despite the already substantial decline.

Tonight, the market will get a glimpse of Australia’s Q1 GDP data, and if the news disappoints, AUDUSD could be pressured back below the .9600 level as currency traders begin to price in the prospect of yet another rate cut.

In the meantime, the unit is likely to remain a laggard, especially against the euro (EUR), which was firmer in overnight trade.

Euro Looks Poised for Upside Run

The EURUSD held above the 1.3050 level and rallied towards 1.3080 in quiet European dealing while boosted by a greater-than-expected reduction in Spanish unemployment (-98.K versus -50.2K expected). This was the sharpest decline in unemployment in nearly a year, and it suggests that Europe’s fourth-largest economy may finally be turning the corner.

The EURUSD continues to trade well, and if the pair could clear the 1.3100 level in today’s North American session, it could pave the way for a run towards 1.3250 as the combination of better Eurozone fundamentals and the growing market belief that the Fed is unlikely to taper asset purchases anytime soon pushes the pair higher.

USD/JPY Rallies After Monday’s Rout

Lastly, USDJPY took its cue from the equity market and rose through the 100.00 level in today’s Asian session as the Nikkei gained 2%.

The US economic calendar is very light today with only the IBD economic optimism survey on the docket, which is unlikely to have much of an impact on trade. However, if the numbers do improve, as expected, USDJPY will likely keep the 100.00 handle as it recovers from yesterday’s profit-taking dive.

By Boris Schlossberg of BK Asset Management

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

Leaders and Laggards: How to Speed Products to Market

One of my favorite cartoons shows a king on horseback with his arm raised, brandishing a sword, about to lead his troops into battle. A fellow is standing next to him with his foot on a machine gun. The caption has the king saying, “I can’t bother with a crazy salesman. I’ve got a battle to fight!”

That cartoon illustrates the problems that entrepreneurs encounter in introducing products to the marketplace. Although the fellow’s innovation could radically change the nature of the fight, either for the king or for his adversary, the king doesn’t realize it, and the salesman isn’t doing anything to change the king’s point of view. Worse, he’s trying to sell his innovation to the wrong customer.

This happens a lot in the business world. Entrepreneurs spend time and effort trying to market new products and never understand that they’re talking to the wrong customers. Rather than try to figure out who the right customers are, they usually approach any possible customer, and often meet people with the same attitude as the king on his horse.

The king has no interest in trying a new product. He loves his sword; he is comfortable with his sword. He was trained on that sword; his father and grandfather used a sword; even his adversary uses a sword. This sword has won him many battles in the past. So why should he change? Why should he try something that’s foreign to him, that will cost more money, that he’s not sure will perform as well and requires a whole new learning curve to implement? Besides, he doesn’t have time to try this innovation. He’s about to go into battle. Later is better, when he’s not so pressed for time. So, what’s an entrepreneur to do?

Diffusion of Innovation

In situations like this, go with theory, because the theory of the diffusion of innovation is powerful. It postulates that in any given social milieu, such as a country, state, city, community, church, school, company or market, people are spread across a bell-shaped curve in terms of their attitude toward innovation. They range from those who are wild for any innovation to those who have to be dragged, kicking and screaming, like the king, to anything new. The spread across the curve has the following distribution:

  • Innovators. On the left of the curve, making up 2.5% of any given population, are the innovators. These are individuals who love the newest bells and whistles, and will try anything simply because it’s new. This is not the most important group for entrepreneurs to focus on, because they don’t relate their interest to any practical use or application.
  • Early adopters. This is the critical group for entrepreneurs to identify and work with. They like trying new things because they want something that performs tasks better. More importantly, these people are opinion leaders. They are the consultants, industry luminaries, business experts, company groundbreakers, trade journal writers, and media and Wall Street analysts who are constantly looking for the new, new thing that will enhance performance. As opinion leaders, they can accelerate the introduction of a new product into a marketplace because they influence others to buy. Whom do they influence?
  • Early/late majorities. The largest segment of a population, like a market, is the early and late majorities. Each comprises 34% of the people in that population. The early and late majorities look to the early adopters to help them determine whether or not to buy a new product or service.
  • Laggards. These are people like the king on the horse. They simply want nothing to do with the latest-greatest, whatever it might be. These folks believe the computer is a passing fad and the typewriter is about to make a comeback.

Accelerating the Diffusion Process

Entrepreneurs should focus on identifying and working with the early adopters in their market, so as to speed the introduction of new products. To find early adopters, ask others in your industry to name who likes to try new things; find out which companies have a track record of serving as a beta site or test center for new products; keep your own list of customers who seem willing to experiment; make a list of luminaries, trade journal editors, consultants and media people who report on developments in your business area; monitor trade show attendance lists; and ask others who are knowledgeable about your industry to identify people and companies that have developed a reputation for being innovative.

Once you’ve identified early adopters, you can be more proactive than the machine-gun salesman. To help with the diffusion process and to bring your product to the attention of early adopters, do the following:

  • Show product advantages/benefits. Once of the most effective ways to do this is to demonstrate the product. The machine-gunner, for example, could fire the gun! In other words, show how what you have will improve performance for the customer.
  • Emphasize compatibility with lifestyles/workstyles. Every new product is a substitution for an older one, one that people may have become comfortable with because it has come to fit their lifestyles or workstyles. Thus, show how the new product can enhance lifestyle and workstyle, that is, how it might make things easier, faster or more effective.
  • Reduce reluctance to change. Offer warranties, guarantees and money-back assurances to encourage people to try the product.
  • Communicate adverse consequences. Let customers know what will happen if they don’t use the innovation. For example, the king would have to face the possibility that his enemy might use the advantage of the machine gun to defeat him.

The theory of the diffusion of innovation has a powerful and practical message for every entrepreneur who wants to introduce an innovative product or service into the marketplace. Don’t knock on just any customer’s door. Don’t get stuck with the laggards. Identify and seek out the early adopters—those opinion leaders who influence others to buy. If you do, you’re likely to win, not just the battle, but also the war.

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