Forex cluster analysis

Forex cluster analysis

Forex cluster analysis

This type of analysis and forecasting in the international currency market is one of the most complex. At the same time, cluster analysis of Forex is the most interesting, as it opens up previously unknown sides to traders.

This principle is based on the postulate that all the trader's currency instruments are connected to each other. Accordingly, if one of the Forex assets is in a downtrend or is growing, this will have an impact on other currency assets as well.

By and large, cluster analysis of Forex in this case does not make any new discoveries. Indeed, there is a reason for this relationship – the international market. In majors, for example, there is an American dollar. Accordingly, if one currency pair changes in price, then others will also change. Especially if this is directly related to the value of the us dollar.

It is no secret that the trend in the market is easy to find. But the problem is that many determine the trend too late. It is already in the development phase and can end at any time. It is very important for a Forex trader to find exactly the moment when the trend will only begin. And cluster analysis of Forex can help in this.

Features of cluster analysis


Before we get to the practical part, a bit of theory. So, the market is a meeting place for buyers and sellers. And, although Forex is over-the-counter, there are also always both buyers and sellers.

Customers always want to buy a product cheaper (in our case, a particular currency). Sellers tend to sell the product more expensive. Accordingly, there is always a trade between these two groups and as soon as it is possible to agree, a tick appears on the Forex chart.

If you are interested in cluster analysis of Forex, you should know that the number of buyers and sellers in the market during a certain period of time will not necessarily be the same. In addition, the number of open positions may vary depending on the price of a particular asset.

Accordingly, when the price changes, the volume of transactions also changes. And this is important to understand. This means that we need to focus on these volumes, and only then on the price. If you can see who is dominating the market, you can predict further price movements.

Those who are just beginning to understand Forex cluster analysis should be able to distinguish between two main points – deltas and clusters. So, the Delta is the difference between long and short positions per unit of time. As for the cluster, this is a kind of bar, but it differs from the classic one.

The fact is that the cluster represents certain levels that reflect the volume of long and short positions. By and large, we are dealing with a whole group of individual deltas, with which you can understand who has an advantage in the market.

In essence, Forex cluster analysis consists of counting groups of deltas in a single link. If the result is positive, it means that there are more buyers on the market. Accordingly, if the result is negative, there are more sellers on the market. The scheme is quite simple and even beginners can make such a forecast.

The values of deltas can be interpreted in different ways. For example, there are moderate, normal, and critical ones. If the volume in one Delta is higher than the average value, it is highlighted with a special shade to distinguish it from the others.

Forex cluster analysis works as follows. If the calculation shows that the Delta value is moderate, it means that the market is most likely not the main trend. There is a sideways movement.

If the cluster in Forex has a normal value, it follows that there is a trend in the market and the price follows it. In such situations, you can also use trend indicators that confirm the presence of one-way traffic.

In situations where the Forex cluster is critical, it is possible that a trend reversal is approaching. The most convenient way to use this method of forecasting is when the market is flat.

In such situations, you can wait for the moment when the market moves to the trend and then "catch" a good movement. Those who manage to do this can expect a fairly good profit.

To understand how to correctly analyze clusters in Forex, let's turn to an elementary example. There are three currency pairs-EUR/USD, GBP/USD and EUR / GBP. Let's assume that the Euro-dollar rose, but the pound-dollar remained in place. Therefore, we can expect the growth of the Euro-pound.

This is how cluster analysis works in trading. In principle, as you can see, there is nothing complicated here. Such relationships are found everywhere in the market. Thanks to this forecasting method, you will be able to get more accurate signals for opening positions.

Forex strategies based on cluster analysis can be very different. Most often, this is a search for a trend line, identifying false breakouts, systems for a reversal, trading for breaking through important levels or flat trading.

We will look at some examples of characteristics that can be used successfully enough to apply cluster analysis in trading in practice. So, if each subsequent Japanese candle closes below the previous one, the negative Delta and volume grow towards the trend and there are large clusters towards short positions, we can say that the minimum value will be broken.

Cluster analysis in trading can also be used in a situation where a downtrend continues: each subsequent low is lower than the previous one, deltas have a negative value, and there is a General increase in volumes on the market.

In order to understand how to correctly analyze clusters in Forex, let's look at another interesting situation. We are talking about trading in the flat. A sideways trend is observed when volumes grow, but the overall Delta is in a downward trend.

It is important to keep in mind that during the development of the sideways movement, special attention is paid to Forex orders that are not far from the maximum and minimum values for the reversal of local trends.

When considering cluster analysis in trading, we should not forget that the accumulation of Bid and Ask orders on Forex reveals the market intent, in fact. However, it is in areas of congestion that a u-turn can be observed. Why is this happening? The thing is that at such moments it is important to understand who is buying and who is selling.

Are there any disadvantages to this method of forecasting? In principle, Yes, they are and you need to know about it. First, this technique applies primarily to technical analysis. Therefore, this system works best in relatively quiet markets, when no important data or events are planned.

Another drawback is that the cluster analysis takes into account tick volumes, which, in General, do not show the amount of money in transactions, but only the number of transactions. Accordingly, we do not know exactly where the big money is looking, but we only have an idea of which way most players are looking at the moment.

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