Ranking of Forex Symbols and Potential Trading Strategy Explained
Ranking is one of the prime metrics in the financial market. For example, we rank stocks according to their return or move. You will often see that Wall Street Journal or Financial Times announces the biggest winner and biggest loser in stock market. The ranking in Forex market is probably least concerned. However, even in Forex market, the ranking will offer you more or less the same effect. You can create many different trading strategy depending on their ranking.
Here is the definition of “rank” in Cambridge Dictionary:
- a position in an organization, such as the army, showing the importance of the person having it
- a particular position, higher or lower than others
Here is the definition of “ranking” in Cambridge Dictionary:
- a rank or level, for example in a competition
To use ranking for your trading strategy, you do need to understand why ranking of some Forex symbol goes up and goes down. Ranking in Forex symbol is tied to their fundamental strongly. Ranking will be structured according to the merit of each symbol for the given fundamental news, economic data release, political and geographical risk of the currency symbol.
Ranking helps you to compare your symbol to other symbols. This is the important capability of what other technical indicators are missing. Ranking is sort of inter market analysis too. For example, if gold price goes up, then ranking of gold will approach to top toward Rank 1. However, if ranking of gold is behind oil, then it means that oil price is moving faster than gold price.
How to use ranking in our trading.
There can be three different cases depending on the market states.
1. Bullish and bearish symbols are mixed in the basket
Top ranking indicates that the symbols are bullish.Therefore 1st ranking will indicate the most bullish symbol (i.e. currency pairs). Likewise, bottom ranking indicates that symbols are bearish. Therefore, N ranking among N number of basket of symbols means that the most bearish symbol. This description is relative.
2. Only bullish symbols are in the basket
In this case, 1st ranking will indicate the most bullish and N ranking is the least bullish symbol.
3. Only bearish symbols are in the basket
In this case, 1st ranking will indicate the least bearish and N ranking is the most bearish symbol.
Trading strategy with ranking
You could create countless trading strategy with ranking. They do that in stock market all the time. To apply ranking in our trading, we need to monitor basket of symbols in real time. We need to be alerted whenever their ranking changed. Remember that people love 1st ranked symbol in the market and the N ranked symbol in the market as part of their trading strategy.
Fundamental news release with Ranking
When fundamental news is released, you will wait until you see the news starts to move the price of the affected symbol. Many trader will then buy or sell the symbol according to their direction. You are wondering why some people are acting faster but more accurately than the others. You are correct, some people are monitoring ranking of each symbol in real time together with fundamental news and economic data release. Especially big guys do this or at least they have the facility to do this.
Technical analysis with ranking
Once again, you can combine ranking with numerous technical indicators too. In this case, ranking and technical indicator will confirm the direction together. Some potential strategy include:
- 1 ranked symbol + bullish breakout in case of the mixed basket or all symbols in the basket is bullish.
- N ranked symbol + bearish breakout in case of the mixed basket or all symbols in basket is bearish.
- Portfolio trading in this case you will need to know correlation across all symbols.
I just covered some usage of ranking in brief. I want to be really brief here because we use ranking in our every day and it might be just common sense to use ranking for our trading. Of course there are even more advanced trading strategy using ranking. This is one of those many trading strategies.
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https://algotrading-investment.com
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