Weak currency trading strategy

Trading can sometimes feel like a very brutal battlefield. You need to decide your own trading strategy and be responsible for your trading results. In most cases, identifying trends and shorting weaker currencies is the smartest strategy.

You may feel uncomfortable with this kind of trading, and many traders are self-righteous about bottom fishing currency pairs that are constantly falling in price, attempting to buy low and sell high. However, a falling currency pair will usually continue to fall, as described by Newton's law of inertia: everything remains in its original state of motion when there is no external force acting on it, unless the force acting on it forces it to change this state of motion.

How to capitalize on traders' emotions

Many traders like to use the Speculative Sentiment Indicator (SSI) as a tool for analyzing market sentiment. In simple terms, the SSI indicator shows the proportion of retail traders' long-short positions. Unfortunately, we found from the SSI indicator that retail traders still tend to stick to contrarian trades even when the trend is very clear. But then we can also use the SSI as a contrarian indicator.

As you can see from the chart above, the green line represents price volatility, and the shaded area represents the net position of the market. As you can see from the chart, retail traders often build a net long when GBP/USD is falling, but turn into a net short when GBP/USD is rising. Just look at the sentiment indicator above and trade against the crowd, while avoiding top bottom fishing, and your trading performance will be greatly improved.

Capture a weakening currency

We summarizeforeign exchange marketRetail traders' positions make up our speculative sentiment indicator SSI. Since May 1st, the AUD/USD has been the weakest, falling below the 11-month price range, the low support of 1.0200, and continues to drop 1100 + basis points.

Reading the current speculative sentiment indicators, the GBP and AUD are likely to continue to weaken, which means you can take advantage of extreme sentiment indicators to continue selling short the GBP and AUD currency pairs. You can identify the strongest currency at the moment and trade the weaker currency by going long on that currency and shorting the AUD (or GBP).

Summary: We don't think the Australian dollar's decline is over yet, and by looking at sentiment indicators and prices, we also have reason to believe that the pound will come under pressure in the second half of the year. We recommend that traders focus on the strongest (or weakest) currencies in their trading career, and plan their trades by using trend analysis and speculative sentiment indicators, which will greatly benefit your trading results.