Baseball is one of the most favorite sports worldwide and almost everyone who likes baseball has his favorite team. Being a true fan, a person knows the strengths and weakness of his favorite team. If you ask a fan to bet for his team for winning chances, he will probably select a lower ranked to increase the chances of winning. Although, we are discussing about baseball, this logic can work anywhere. Similarly, if a stronger force competes against weaker, their chances of success will surely increase. This phenomenon of winning must be followed while you are trading.
Combining the currency pairs
In forex trading, when we are dealing with currencies, we always use currency pairs. This way, a trader purchases one currency, and the other one is being shortened with it. If this is how things go here, then probably every trader would like to combine stronger currency with the weakest currency to form a pair. Luckily, the currencies we use in the forex market are of those countries that have stronger economic positions. Almost every data, economic data of countries is released that acts as a leader board for every country. If the reports are showing positive results, this means the country is performing very strongly. On the other hands, if more negative reports are coming, then it will show the weaker position of the country’s economy.
More than a data, making a pair of strong currency with weak currency can give you a lot of advantages. When a currency gives a string report, the central bank is more convenient to increase the interest rates which lead to the high yield of the currency. On the other hand, if a currency is giving negative report, the central bank won’t feel comfortable to raise the interest rates. The future position of the currency is indeed one of the most important factors for the currency markets as it leads to the increase in the yield position of the currency.
Using interest rates
Along with watching the current data of the currency, you should also look at the interest rates of your selected currency pair. For example, the currency pair EUR/GBP first came out in the market in 2006. This break out achieved a new height because at that time Europe was going to raise the interest rates due to stronger position of the economy.
Whatever each country was doing with interest rates helped the EUR/GBP currency pair to go higher, and hence it became a very strong pair. This shifting was made possible to make EUR/GBP a weak strong currency pair that will be traded highly in the market. Just like strengths and weakness makes up a company, similarly a strong and weak currency pair is indeed a best way to remain at the top of the market. Apart from the financial advantages, the strong-weak currency pair will help you in controlling your loss. It will also help you to place your trade logically.