The largest global financial market is, of course, Forex. People who seek to become profitable traders spend many hours online reading information concerning financial planning or minimizing losses. In fact, they should be spending their time reading about intermarket relations. Intermarket relations are important in trading as they help capitalize on gains and hedge positions. A successful Forex trader understands the relationships between markets and in what way they are changing. Observing the relationships between stocks and bonds, or the US dollar and commodity prices will help you make smarter decisions.
Stock markets are interrelated with each other
If you are a newbie, then the Forex market may seem intimidating. There are all sorts of indexes, stock types, and categories. At first glance, nothing makes sense. What you need to know is that the stock market is part of a complex system. To be more precise, it is related to stock markets from all over the globe. Why? Well, you see, economies depend on one another and they link markets. There is a correlation between stock markets that are otherwise different. The thing about these relationships is that they are not one-to-one. All markets work together. Nonetheless, there are times when the assets move higher together or lower together. Many traders ignore the subject altogether, focusing their attention on one market at a time.
Currency rates in forex
Dollar strength impacts commodities
Feras Antoon draws attention to the fact that currencies have an impact on all markets, so you need to pay close attention to commodity prices. Until now, there was an opposite relationship between the dollar and asset prices. The values of commodities dropped significantly when the dollar became stronger than other currencies. When the value of the dollar started to drop, you could see an improvement in the price of commodities like corn and wheat. Nowadays, things are different. Commodities don’t move lower when the dollar moves higher. The explanation could lie in the supply and demand. The point is that the negative correspondence between the dollar and basic goods used in commerce is not so obvious anymore.
A growing market divergence
Divergence occurs when two stock markets that were previously connected split apart. When there are divergences between important indices, the markets become volatile. What you should do is look for markets that have a monthly alternation above 0.6. Due to the fact that markets are made up of price swings, it is important to determine when one of the trends is slowing down. Divergence can be positive or negative. Take the following example: a stock is low yet indicators start to revive. A positive divergence will most likely occur. If there are considerable divergences, then you have to check the news events that are taking pace during that period. It is a good idea to trade with the weaker market. By weak, it should be understood the market that is prone to following, rather than leading.
It is not possible to get solid buy or sell signals. On the other hand, you can confirm trends and even know about reversals ahead of time. How so? Thanks to intermarket analysis.
Sources: investopedia.com
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About the Author: Guilherme Neto
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