by Johan Kriek (jkriek@fxinstructor.com)

Hi there and I hope you have had a nice trading day so far. Below follows a Probability Study on the Dollar Index to show you what exactly we can expect from the Dollar today.

Now, before I start, I’d like to briefly explain the Probability Study Technique:

The Probability Study Technique is derived from the Dow theory. Now remember that the Dow theory has many assumptions but one of those assumptions are that the market will move in THREE TRENDS – the Primary, Secondary and Minor

Now, because we are day traders I will only use the direction of the minor trend to determine the direction oh highest probability. I have also added a stochastic to determine if price is currently trending within the direction of highest probability but before I confuse you, here follows my probability study on the Dollar Index:

Look at the Daily chart above:

I have identified the Primary Trend and the Secondary trend. Note that the secondary trend is the most active cycle within the primary trend

Now that I have my Secondary trend, I can identify my Minor trend which resembles the most active cycle within the Secondary trend. I have done this on a 4hr chart:

Above is the Minor trend. Clearly it is bearish. Therefore the direction of highest probability is BEARISH for the Dollar for today. If the upper resistance line of my Minor trend is breached at roundabout 81.20 then all of a sudden the Direction of Highest Probability will be bullish

So, there you have it, we can expect the Dollar to weaken today but can we look for trades right now on currencies based on this?

NO

Look at the chart below:

On the above chart you can see that I added a Slow Stochastic (8,3,3) and even though it is over bought is is BULLISH nevertheless. This means we have a no trade zone and I will wait until this stochastic gives me a BEARISH CROSS before I can look for trades using this context of a weakening dollar

Remember this is only for today…. Tomorrow the scenario could be different

I hope this has shed some light on things for you. Enjoy the rest of your trading day and I you have any questions on the Probability Study technique you are more than welcome to send me an email at jkriek@fxinstructor.com

Johan Kriek