Thursday, March 19, 2009

Using Non-Confirmation To Trade Forex

Lately the Euro has been a leading indicator for the direction of the Swiss Franc and even the U.S.Dollar. In the above chart you'll notice that many of the significant turning points could have been identified simply by looking for divergences or non-confirmation between the Euro and Swiss Franc.

Back in late November, the Swiss Franc broke down to a new low but the Euro had already stopped going down and made a higher low. This non-confirmation kicked off a huge 4 week rally in both currencies.

In late December the Euro made a new high but the Swiss Franc did not. This is a bearish divergence or non-confirmation which led to a 2 month sell off. I actually posted this trade on this blog BEFORE the move happend so this isn't just hindsight. You can read that post by clicking here.

Just a few days ago on March 12th, the Swiss France made a new low but the Euro didn't. This is a bullish divergence similar to the non-confirmation we saw last November. As you can see, both the Euro and Swiss Franc are now moving much higher.

The Euro has been a wonderful leading indicator for the what the Swiss Franc and even the dollar may do so watching out for such divergences can be very helpful.


Anonymous said...

i like the way you use divergences -platinum and gold and euro and SF-and has given me something new to learn

Anonymous said...

The charts you choose to show are so well explained and interpreted that there is hardly any need for a comment - except perhaps: thank you!

dacian said...

As for trading the EUR for instance, what's your point for the current move? Buy the EUR/USD dips?

Kevin said...

Hi Dacian,

I would think buying the dips in EUR/USD would be the way to go

Anonymous said...

When there's a nonconfirmation.... Which of the pairs is better to trade....The one that "bucks the trend" first...or the one that lags? So for example, in a down trend, the Euro doesn't make a lower bottom while the Swiss does...Which one is the better buy?


Kevin said...

You always want to trade the market that is bucking the trend. In your example, I would buy the Euro because it did not break low with the swiss franc. This tells me that the Euro is stronger than the swiss and you always want to be in the strongest currency.


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