ForexSpirit

While I wait out the current US dollar bullishness to subside I decided to scratch an itch I’ve had for a few weeks and test out Tom Yeoman’s ForexGrail strength meter.

I’ve resisted looking into this trading tool for quite a while as I know that Tom prefers to trade short time frames, generally 5 minutes charts, which have never seemed to mesh very well with me. After trading for five years now I know only too well the randomness vortex that exists in these short time frames.

The ForexGrail is a Windows application that shows the relative strength of an individual currency.

When EUR/USD is rising there is at least one of the following two reason in play (if not both): the euro is strengthening and/or the US dollar is weakening. If you want to figure out technically which is the case you can look at other currency pairs that contain the euro and US dollar and see if the euro is also gaining against other currencies, or if the dollar is weakening elsewhere.

The ForexGrail does this examination for you and if a currency is strengthening against multiple currencies then it will be given a value closer to ten. If a currency is weak against multiple other currencies then the application will give it a value on the bottom end of the scale closer to zero.

The application uses a MetaTrader DDE price feed as its data input and thus must be run for a while before you can see any real trends or changes in the strength or weakness of any individual currency.

As a quick example, here’s a quick snapshot from today’s price action:

The US dollar has been generally strong all day while the Aussie dollar has been beaten down (not surprising give the RBA’s statement from last night).

The ForexGrail thus allows you to quickly zone in on a currency pair that is trending nicely without having to examine tons of charts.

Another reason why I haven’t given up completely on short term time frames is something that has stuck with me from reading Richard McCall’s Way of the Warrior-Trader. McCall’s approach to trading is grounded in his martial arts background and is steeped in the way of the samurai. He focuses on short term trading (for him on the e-minis) for no more than an hour each morning. Just as a samurai sword fight is quick and brutal, McCall recommends focusing all your energies on your trading activities for a limited amount of time. You engage with the market for however long you are at your peak mental fitness, and then disengage and rest for the remainder of the day.

I think I’ve mentioned this concept a few times before and generally tried to apply it in the way I approach the market for medium and long-term trading: the majority of my analysis and market research is done during a twenty to thirty minute period in the morning.

As I dial down the time frames on my charts and look to examine those five minute charts again I need to take heed of this same approach to make sure that I don’t get sucked into the relentless tick movements at these shorter time frames. I don’t want to be watching prices bob up and down for hours on end. I want to be able to hone in on where the action is, which hopefully the ForexGrail will help with, spot a trading opportunity that fulfills a predefined set of criteria. Manage and exit the trade within a reasonable timeframe and then go about the rest of my day.

It’s very early days yet on how viable this sort of trading approach might be for me, but I think it’s worth examining since I have learned a lot on my trading adventure since the last time I really engaged with short time frames.