Foreign Exchange Trading Intermarket Analysis

In our global financial system all of the major world financial markets are interconnected, yet the most popular form of forex market analysis, technical analysis, concentrates only on one market at a time. Most traders that implement technical analysis-based trading strategies may use tools such as candlestick formations or moving averages, but they will only focus on one chart or one market at a time.

Technical analysis can still be very useful to a forex trader. After all, the vast majority of all daily forex trading volume is speculative in nature, and all of those masses of traders working at their computers are likely following the same handful of indicators and oscillators, as well as focusing on the same levels of support and resistance. If enough traders are following a 14-day Relative Strength Index indicatorthen making successful trades based on that indicator becomes self-fulfilling in nature.

In fact, it is possible for you to completely ignore all other financial markets and only focus on one currency pair's chart, and you could still have a profitable trading strategy. However, the stock and commodity markets (with oil and precious metals playing a large role) of a given country will inevitably affect the value of that country's currency, so it would be wise for any astute currency trader to stay aware of the goings-on of other related financial markets.

An interesting development that comes with the widespread proliferation of forex trading is that there is a relative lack of intermarket analysis compared to most stock or equity markets. If you have even a brief knowledge of stock-picking strategies, then you should be familiar with the concept of diversification (spreading your stock picks across different sectors) as well as using a general index of stocks to rank a specific sector's performance.