Using the DXY in your trading

Hello and welcome to Diary of a traitor. Today’s video we’re going to go over how to implement the dollar index into your trading if you’re forex trader. The dollar index is it’s just a basket of currencies and their dollar pairs and rates. It shows you how the dollar performing against that basket of currencies. Now most of the dollar index has the euro the euro U.S. Dollar paring it. It also has the pound, dollar the dollar, yen and it has the Swedish kronor in there as well. There’s a lot of discussion about them you know reducing the dollar index because it should probably have the peso in there. The Canadian dollar the Renminbi Chinese currency and balance it all of bit because it’s it has not changed for a long time. But regardless when we see the dollar index it’s giving us an idea of where the dollar is performing against other currencies other dollar pairs and how do we implement this into our trading well. We want to if we are let’s say we trade the euro dollar and I want to do a side by side comparison. So here’s the Euro and then I’ll put the dollar index over here. And if you don’t have the dollar if you don’t know where to find the dollar index we just go to a D X Y and click on CFD that means contracting for difference and it’ll give you this and then just click on it it’ll put it in your watch list and then you can get the dollar index right here. So what you’ll notice is that one great example. And I think something that will all be able to notice is that as the dollar index rises the euro falls. All right, if we look at the current price action right now if we were to highlight that zone, we can see that we’ve had this. These are both hourly charts. We can see that we’ve had three hours of a downtrend in those candlesticks and currently now it looks like we’re having somewhat of a bounce. We look over here we see really just the exact opposite of that move. We have three hours of a rise in the euro followed by a little bit of a top here forming with some selling and this is pretty normal to see because you know the again most of the dollar index is weighted with the euro I think it’s 50 to 56 per cent of it is weighted with the euro. So how does that work with other with other currencies because you know, sometimes it’s not easy to catch a change in the dollar strength when trading the euro because they’re too sensitive. One thing that we can look at is the pound, dollar whatever currency is whatever dollar currency besides the euro. Sometimes we can catch a move that happens and the dollar index before we notice a change in another currency and we sometimes kind of have to do this on a shorter timeframe like a 15 minute timeframe. So this is the pound, dollar on the left and then here is the dollar index on the right. And what I’m looking for is some type of Candlestick pattern or change that indicates we’ll see some move in in price before the dollar index that would happen a little bit before we would see a change in another for the pair. So if I’m looking here to see this was at 745 Mourning’s 745 the morning that one wouldn’t have really tipped anything off. However, with the selling that was going on here the selling is kind of indicating that we had some selling pressure. That was a little bit ahead of the game in the dollar index that we wouldn’t have caught on the pound so we could have capitalized on noticing a drive down in the dollar index by looking at a long trade in the pound. These sometimes these will, this is like an arbitrage opportunity if you want to consider it that, but sometimes we can get a view of this on the daily chart as well because not every move that we see is going to have an inverse reaction.

So on the pound, dollar and then the dollar index what I’m saying is that it is possible to have days where the dollar index is trading down and the pound is trading down but those instances are far and few between. But when you notice them those are good signs that you should, you should take the trade that it’s going to be going. So what I’m what I’m saying is that if you notice that the dollar index is rising and on that same daily chart you see a candlestick or a couple candlesticks that are also rising when the dollar is at the same time.

That’s a good indication that you’re having a lagging move in in the in the pound, dollar and that you can, you could safely entertain a short idea because there’s a bit of a lag in the performance of that pair.

If we look at the first of June where you are right here, here’s the first of June that’s a bullish that’s a bullish looking Candlestick right. Well, rather not know if it’s bulls Candlestick, but we had we had a day where there was more buyers and sellers and that is shared with the pound as well.

But what do we know about this. We know that as we were as we were we’re moving we saw two large and large sell off from a top were pretty top heavy here and then we see the dollar index is actually starting to continue a move lower because then we had a shared bearish Candlestick on the fourth. So both the dollar index and the pound had an up day on the same day and then followed by a down day on the same day. But whereas this is where we use we use our trader’s intuition we use some oscillators so we could use the stochastic RSI on that chart and on this chart as well and looked down and certainly looking at it on these days.

What could we infer from these moves well because the stochastic RSI was on a downward slope. We would know that the dollar index as a whole because it’s so weighted against other currencies we knew that the euro was trending up heavily here, even though the pound wasn’t that we had a good idea that the conditions of our oscillators and the relative trend change that we noticed earlier in the day Zwai told us that a long entry on the close of the daily would have been a nice drive up and that’s exactly what happened.

Now again, you don’t see a lot of these trade opportunities pop up, but when they do you know you should notice them and pay attention to them. Certainly one of the nice ways to kind of gauge where is the if you trade a lot of the dollar pairs like the dollar yen the gold dollar US dollar Canadian dollar et cetera et cetera paying attention to the dollar index is a very good way to kind of gauge the overall strength of that currency with the pairs that you’re trading and that that can really help you determine your intraday trades and your macro weekly trades by gauging how the dollar index is currently operating because certainly if we have a day where we’re if we’re up in the dollar index and we’re up in another non euro pair like the like the pound dollar the Canadian dollar Aussie dollar New Zealand dollar.

If they’re outperforming if they’re trading up during the day the same time as the dollar index is then we need to pay attention to those times because those toys can certainly turn into good trading opportunities. Thank you for watching this video and I look forward to talking with you in the future with our future videos bye.

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