Forex Trading Using Intermarket Analysis

By Louis B. Mendelsohn

Quick Summary

Louis Mendelsohn, a pioneer in trading software development, argues that in today's interconnected global marketplace, successful forex trading requires an intermarket analysis approach that considers the relationships between currencies and other financial markets (equities, bonds, commodities) across the globe. The book presents the case for using technology-driven intermarket analysis to gain a competitive edge in the forex market.

Detailed Summary

The Intermarket Thesis

Mendelsohn's central argument is that no financial market exists in isolation. Currency values are influenced by -- and in turn influence -- interest rates, equity markets, commodity prices, and the policies of central banks worldwide. Traders who analyze forex pairs in isolation, using only single-market technical analysis, are ignoring the most powerful forces driving currency movements.

Globalization and Market Interconnection

The book traces the increasing interconnection of global financial markets and argues that this trend will only accelerate with technological advancement. As trade flows, capital flows, and information flows become more globally integrated, the relationships between markets in different countries and across different asset classes become both stronger and more complex. The 21st century forex trader must understand these cross-market dynamics.

Technology and Competitive Advantage

Mendelsohn, who developed some of the first personal computer-based trading software, argues that technology is the primary tool for processing the vast quantity of intermarket data required for effective analysis. The book presents the case for using neural network and artificial intelligence-based tools to identify non-obvious intermarket relationships and generate trading signals that incorporate cross-market inputs.

Practical Application

While the book is more conceptual than tactical (it does not provide specific mechanical trading systems), it outlines the framework for an intermarket-aware forex trading approach: monitoring correlations between currency pairs and related markets (such as the EUR/USD relationship with gold, or the AUD/USD relationship with commodity indices); using leading indicators from related markets to anticipate currency moves; and integrating fundamental intermarket awareness with technical timing.

Categories

• Forex
• Technical Analysis
• Intermarket Analysis

Key Takeaways

• No financial market exists in isolation; intermarket relationships drive currency values
• Single-market technical analysis ignores the most powerful forces behind forex movements
• Technology (neural networks, AI) provides a competitive advantage in processing intermarket data
• Correlations between currencies and equities, bonds, and commodities offer leading indicator potential
• The trend toward global financial integration makes intermarket analysis increasingly essential