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When To Trade Crosses
If you're a beginner this is something very simple and obvious that may have slipped past you (as it did me for ages). The pairs known as "crosses" are exactly that; exchange rates that are mathematically derived from other major pairs. I also heard the term 'synthetic pairs' somewhere but I can't remember where...
Anyhow this is the point - how do you know, for instance, the price of EUR/JPY pair? This is how: EUR/USD * USD/JPY = EUR/JPY At the time of writing EUR/USD is at 1.3825 and USD/JPY is at 121.19 1.3825 * 121.19 = 167.5451 (the EUR/JPY price). Go on, get your calculator and do it. This is important to know because you may be trading a cross thinking (for instance) that USD ecconomic data does not affect you but of course it does, because this price is simply derived from a multiplication of the majors. So whats the point of trading crosses? Well theres a big point to it when, for example, the USD/JPY is in a downtrend, and then the EUR/USD also goes down for some reason such as a retracement or news. In such a case you forget both majors and sell the cross, because it will be DOWN MULTIPLIED BY DOWN. Usually though they are moving in opposites. The main point of this post is to illustrate this obvious thing - that the crosses are mathmatical derivatives and not to treat them like they are just other pairs. They are not. So apart from these possible double-whammy scenarios also watch for the opposite, i.e. the big Friday downmove on USD/JPY was muted on EUR/JPY because of an upmove on EUR/USD. On that day the USD/JPY moved 158 pips but EUR/JPY only 129 because of a 60 pip upmove on EUR/USD. |
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