Forex Domino Effect
Forex Domino Effect, The domino effect is an advanced topic for forex traders. The basic description of the domino effect is that one or more currency pairs in an individual currency group make a fairly strong movement up or down, based on individual currency strength or weakness. Then, the remaining pairs in the same currency group start moving in the same direction, like dominoes falling.
The domino effect can occur session over session as currency pairs in the same group begin moving, then the movement spreads to the other pairs in the same currency group in the next trading session. There are two trading sessions, the Asian trading session and the main trading session. The domino effect can also proceed day after day, with one or more pairs in the same currency group moves today and the rest move tomorrow or the next day. Since this is hard to visualize we will provide many examples to make the concept clear.
When the first pair or pairs move it is like the first domino falling. When the other pairs in the same individual currency group follow the first pair it is like dominoes lined up next to each other falling and knocking each other over. Each currency pair is a domino because you have leading and lagging pairs and their individual movement cycles.
Currency groups are like the JPY pairs, USD pairs, CAD pairs, etc. We follow eight currency groups with our trading system, and there are 7 pairs in each group.
The domino effect is hard to explain and understand for almost all forex traders, but it is certainly easy to see. Any forex trader who has some fundamental knowledge of multiple time frame analysis and parallel and inverse analysis has the proper foundation to understand the domino effect. If you drill down the time frames daily on all 28 pairs, the domino effect will unfold right in front of you, as long as your charts are set up by individual currency.
If a forex trader treats an individual pair like an island with no outside influences, they will fail miserably. But a trader who understands how the dominoes fall will see the pips coming on any pairs likely before the move even starts. This lesson is our most advanced topic.
