I was asked by one of my readers what I think of VSA or Volume Spread Analysis, for people who don’t know what that is , the premise is that the volume indicator is valid on the Forex just as it is in stocks or commodities and can provide important information as to the likelihood of there being strong or weak momentum. That is my understanding and I am willing to be corrected if I have it wrong. I did test this, going back in time and looking at volume to see if there was a consistent way of using it to add to the probability of the entry. I found that it was inconsistent and difficult to interpret, it provided yet another thing to learn and I personally didn’t find it of value. I use price action to try and predict momentum, Trend line breaks, candles hugging the fast moving average, breaks of tight areas of consolidation etc.
Currency strength indicators on the other hand I think could be very valuable, I was in that situation this week where I was taking a trade on the Eur/Jpy and seeing it move sluggishly compared to the EUR/CAD and the EUR/USD. The problem I have is that there was no set up on those two pairs, where it becomes valuable is when there is a choice of trades and then of course you would go the pair with the stronger probability. The other option is to only look for short trades on the weakest currency and vice versa and be flexible when looking for set ups, just have a wide variety of trading entries. That is not my way of trading however, it’s too random for me.