What is the Matrix?


The Matrix (Figure 1.1) or Currency Strength Matrix to give it its full name is a market analysis tool specifically designed for the Foreign Exchange (FX) market that allows traders to have a much more focused approach to their trading each week. The FX market is a very complex and unique market to trade, not least because of its two sided nature which can make trade selection much harder than in other markets. It is therefore easy for even experienced traders to find themselves in a trade which they later regret taking. Having a system like the Matrix that filters out these trades will increase a trader’s probability of success. 

Completed on a weekly basis while the market is closed, the Matrix identifies the current strongest and weakest currency pairs, giving traders the highest probability buy and sell options for the week ahead. To complete the Matrix a trader must first analyse each of the 28 currency pairs included therein, Figure 1.2, and as this is done using rules based analysis, it ensures a systematic and consistent approach to reading a price chart that eliminates the possibility of errors typically associated with misreading a chart. There are many more currencies available to trade than those presented in the Matrix, however due liquidity and the fact that these currencies make up the vast majority of daily trading volume, I have restricted the list to the 8 major currencies making 28 currency pairs.

As a technical trader, reading a chart consistently is critical in your aim to take money from the market. I say consistently instead of correctly as there is no one correct way, we can all trade differently and therefore see things differently, but we must always individually be consistent in how we do it. Unfortunately however, we are all human and prone to errors, whether you’re a beginner or an experienced trader. In most aspects of our lives we can get away with small errors, but in trading, errors cost money. In our experience working with clients, the vast majority of these errors, and subsequent loss of money, have been due to a misreading of the chart derived from a lack of consistency and therefore avoidable. These are the worst kind of trading mistakes and eat into your trading capital more than any other. It is for this reason the Matrix was developed in an effort to help traders remove the possibility of discretionary and unnecessary errors resulting in losses. 

Before we get into using and implementing the Matrix in our trading, we must establish the rules for reading a price chart as this is how we determine the scoring we see on the Matrix, Figure 1.1. Firstly it must be remembered that the Matrix is designed to be based on the daily time frame, although it also works well on the weekly. All charts illustrated here are using daily time frames.

 

Next: How to read a chart