Clear debt by trading with the aid of the US dollar index

December 14, 2012 in Forex Articles

The US dollar index has proved to be an important analytical tool for the traders. Moreover, it can be used by traders in just about any market. Most are confused about what exactly is the US dollar index. This is such a tool that almost everyone should be aware of, not only if you’re a trader, but also if you’re wondering how to “settle my debt”.

  • What’s the US dollar index?

The US dollar index is essentially a futures contract. This means that if you hold a futures trading account, then you could actually trade this account just like you do for gold, currency futures contracts, corn, oil, etc. However, fact remains that most retail traders don’t really trade the US dollar index. Rather, they use it as a means to analyze the relative weakness or strength of the US dollar in general.

The US dollar index essentially compares the US dollar against a basket of other world currencies. This basket is a representation of the major and the largest free floating currencies of the world. These are weighed on an average basis. Several currencies are included in the US dollar index, like the Swiss franc, British pound, Canadian dollar, euro and Swedish krona.

  • How’ll you trade the dollar using the US dollar index?

The forex market happens to be one of the most heavily traded markets in the world. If you’re looking for means to settle your debt, then it’d be a good idea to get into forex trading and make use of the US dollar index.

  1. Understand the index: When forex trading with the US dollar index, then it’s extremely important for you to understand this index in the first place. Make the effort and understand how the index is actually calculated.
  1. Learn to interpret: You should also know how to interpret the index. The index was originally started at a base of 100 in the year 1973. Now, if you see an index value of 130, then it suggests that the US dollar has increased in value by 20 percent since 1973.
  1. Extract information: You can utilize the US dollar index to extract information about the direction of a specific currency. Take a look at the 52-week high and low of the index. Note down the dates of the high and low and their position in contrast to the current price.
  1. Chart an average: You should chart 2 moving averages. They include a moving average of the US dollar index over the past 3 months and another moving average over a period of 6 and 12 months. It’s expected that the 3-month chart will be more volatile compared to the 6-month one, and these will be more volatile again in turn with the 12-month one.
  1. Find buy and sell points: Utilize the moving average charts of the US dollar index to find the buy and sell points. For instance, when you see that the 3-month chart has broken out of the 6-month or 12-month one, then you can act on it as a signal to either exit or enter the market. It depends on your individual strategy, of course.

Utilize the information given on the US dollar index and follow the strategies given above to earn some good profit on the forex market. It can be an extremely lucrative source of income that can be used for paying off debt or as an extra source of funds.

1 response to Clear debt by trading with the aid of the US dollar index

  1. Good one, Barbara.