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How to use dollar index to trade Forex | us dollar index chart - YouTube
Channel: The Diary of a Trader
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hello and welcome to diary of a traitor
today's video we're going to go over how
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to implement the dollar index into your
trading if you are a Forex trader the
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dollar index is it's just a basket of
currencies and their dollar pairs and it
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rates the it shows you how is the dollar
performing against that basket of
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currencies now most of the dollar index
has the Euro the euro US dollar pair in
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it it also has the pound dollar the
dollar yen and it has the the Swedish
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kronor in there as well there's a lot of
discussion about them you know redoing
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the dollar index because it should
probably have the the peso in there the
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Canadian dollar the room in B Chinese
currency and you know balance it all a
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bit because it has not changed for a
long time but regardless when we see the
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dollar index it's giving us an idea of
where the dollar is performing against
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other currencies other dollar pairs and
how do we implement this into our
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trading well we want to if we're let's
say we trade the euro dollar and I want
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to do a side-by-side comparison so
here's the euro and then I'll put the
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dollar index over here and if you don't
have the doll if you don't know where to
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find the dollar index we just go to DXY
and click on CFD that means contract for
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difference and it'll it'll give you this
and then just click on it it'll put it
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in your watchlist and then you can get
the dollar index right here so what
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we'll notice is that one great example
and and I think something that we'll all
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be able to to notice is that as the
dollar index Rises
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the Euro Falls alright if we look at the
current price action right now if we
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were to highlight that zone we can see
that we've had this is these are both
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hourly charts we can see that we've had
three hours of a downtrend in those
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candlesticks and currently now it looks
like we're having somewhat of a bounce
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we look over here we see really just the
exact opposite of that move we have
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three hours of a rise in the euro
followed by a little bit of a top here
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forming with some selling and this is
pretty normal to see because you know
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the again most of the dollar index is
weighted with the euro I think it's 50
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to 56 percent of it is weighted with the
euro so how does that work with other
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with other currencies because you know
will there sometimes it's not easy to
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catch a a change in the dollar strength
when trading the euro because they're
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too sensitive one thing that we can look
at is the pound dollar whatever currency
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is is whatever dollar currency besides
the euro sometimes we can catch a move
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that happens in the dollar index before
we notice a change in another currency
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we sometimes kind of have to do this on
a shorter timeframe like a 15-minute
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timeframe so this is the pound dollar on
the left and then here's the dollar
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index on the right and what I'm looking
for is some type of candlestick pattern
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or change that indicates we'll see some
some move in in price before in the
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dollar index that would happen a little
bit before we would see a change in
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another Forex pair so if I'm looking
here
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see this was at 7:45 morning 7:45 in the
morning that one wouldn't have really
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tipped anything off however with the
selling that was going on here the
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selling too is kind of indicating that
we had some selling pressure that was a
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little bit ahead of the game in the
dollar index that we wouldn't have
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caught on the pound so we could have
capitalized on noticing a drive down on
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the dollar index by by looking at a at a
long trade in the pound these sometimes
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these will these uh this is like an
arbitrage opportunity if you want to
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consider it that but sometimes we can
get a view of this on the daily chart as
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well because not every not every move
that we see is going to have a inverse
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reaction so on the pound dollar and then
the dollar index what I'm saying is is
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that it is possible to have days where
the dollar index is trading down and the
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pound is trading down but those
instances are far and few between but
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when you notice them those are good
signs that you should you should take
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the trade that that it's going to be
going so what I'm what I'm saying is is
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that if you notice that the dollar index
is rising and on that same daily chart
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you see a candlestick or a couple
candlesticks that are also rising when
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the dollar is at the same time that's a
good indication that you're having a
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lagging move and in the in the pound
dollar and that you can you you could
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safely entertain a short idea because
there's a there's a a bit of a lag in
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the performance of that pair if we look
at the first of June where you're right
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here here's the first of June and that's
a bullish that's a bullish looking
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candlestick right well rather not know
if it's a bullish candlestick but we had
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we had
day where where there was more buyers
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than sellers and that is shared with the
pound as well but what do we know about
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this we know that as we were as we were
we're moving we saw it's too large we
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haven't we had a large sell-off from a
top we're pretty top-heavy here and then
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we see the dollar index is actually
starting to continue and move lower
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because then we had a shared bearish
candlestick on the fourth
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so both the dollar index and the pound
had a up day on the same day and then
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followed by a down day on the same day
but where's where's this is where we use
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we use our traders intuition we use some
oscillators so we could use the the
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stochastic RSI on that chart and on this
chart as well and like to bring them
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down
and certainly looking at it on these
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days what what could we infer from these
moves well because the stochastic RSI
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was in a downward slope we would know
that the dollar index as a whole because
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it's so weighted against other
currencies we knew that the euro was
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trending up heavily here even though the
pound wasn't that we had a good idea
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that the conditions of our oscillators
and the relative trend change that we
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noticed earlier in the DXY told us that
a long entry on the close of the daily
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would have been a nice drive up that's
exactly what happened now again you
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don't see a lot of these trade
opportunities pop up but when they do
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you know you should notice them and pay
attention to them certainly one one of
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the nice ways to kind of gauge where's
the if you trade a lot of the dollar
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pairs like the dollar yen the the gold
dollar
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US dollar Canadian dollar etc etc paying
attention to the dollar index is a very
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very good way to kind of gauge the
overall strength of that currency with
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the pairs that you're trading and and
that that can really help you determine
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your your intraday trades and your your
macro weekly trades by gauging how the
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dollar index is is currently operating
because certainly if we have a day where
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we're if we're up in the dollar index
and we're up in another non year old
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pair like the like the pound dollar the
Canadian dollar Aussie dollar New
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Zealand dollar if if they're
outperforming if they're trading up
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during the day the same time as the
dollar indexes then we need to pay
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attention to those times because those
those can certainly turn into good
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trading opportunities alright thank you
for watching this video and I look
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forward to talking with you in the
future
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with our future videos bye-bye
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