How to use FX futures to narrow down which forex pair to trade

A problem I have is that once a currency pair shows a viable trading setup, other related pairs often show the same setup too. A reason for this phenomenon is that markets don't operate in a vacuum. When markets really move, everything move together. So the highly correlated markets can scream for entry at the same time. The real question though, is which one should I put my chips in? There are limitless methods on how you can approach this. The one I'll talk about in this post is a simple method of comparing your candidates using the currency futures. Why use the futures? Because they provide a standardized platform, which is essential when comparing things. As a bonus, there is a US dollar index futures to help with analysis of the dollar. Not a trivial process on its own. I will explain my method by way of an example. This morning, I was considering to go long in AUD/JPY, CAD/JPY, AUD/USD, or short USD/CAD according to signals from my FTC setup. Sure, I could have just choose which one to trade based on the RSI rating or some other indicator. But I don't put much faith in indicators for various reasons. So a method I typical use is to just go through the charts to manulally identify which has better reward/risk or better support/resistance. As you can imagine, this is very time consuming. In practice, I only compare AUD/JPY vs. CAD/JPY and AUD/USD vs. USD/CAD, and then compare the winners of those two matches. Like in a tournament. Not that much of a hassle but the issue with this approach is that I'm adding another layer of uncertainty with all these unscientific comparisons. That could have a significant negative impact on my trading. In a good trading strategy, every step taken should be to improve your probability of success or the reward/risk ratio. As such, it's better to keep my process simple. This is where the currency futures indices is of value. They provide a big picture perspective and serve as a standardized data for comparison. Using my example, I needed to choose between shorting US dollar or Japanese yen (I repeated the process for choosing AUD or CAD). Figure 1 below shows the 4-hour chart of both currencies for the past 10 days. It's evident from the chart that the US dollar is in a range and the Japanese yen (actually it's JPY/USD) is moving up. 1 point goes to US dollar trade. Next, I identify the strength of the support/resistance to estimate in the case that the trade goes against me, which would have better cushioning. It's a crude form of risk estimation. From the figure below, see that the dollar has a clear resistance just below 76 and it is currently stretched away from the cyan-coloured moving average. Whereas the yen is near a recent top with no prior occurence and it has been sitting above the moving average for a while. Another point for dollar short. USD 2 : JPY 0. Consequently, I went long AUD/USD this morning instead of AUD/JPY. This is by no means a vigorous methodology. I'm not saying that shorting US dollar is a good idea from this simplistic comparative process. It's just that my setup tells me to go long AUD/USD or AUD/JPY, this is just a quick and easy way to help me decide which trade to take. Nothing more. As an aside, some people may prefer to use currency ETF, UUP and FXY, instead. But I don't like to use ETF as a data source as the price is noisier because they are affected by other factors.

[caption id="" align="aligncenter" width="504" caption="US dollar and Japanese yen futures indices"]US dollar and Japanese yen futures