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  • Writer's pictureVasily Trader

Learn Dollar Index Analysis & Trading Strategy. Make DXY Forecasts Easily

Updated: Apr 18

dollar index trading strategy

Dollar Index is much easier to analyze and trade than you think.

Only the few knows that technical analysis can be perfectly applied for Dollar Index analysis, forecasting and trading.

In this article, I will share with you a simple strategy, that will help you to make accurate predictions on Dollar Index and trade them, making good profits.

We will study important theory and as a bonus, I will share with you a recap of a live trade that we took on Dollar Index with my students.

Step 1: 

Analyze a daily time frame and identify the closest resistance on Dollar Index.

how to analyse and trade dxy

Step 2: 

Wait for a bullish breakout of that resistance.

Remember that for a breakout confirmation, we need a daily candle close above the resistance.

dollar index analysis and trading

Bullish violation of a key daily resistance is an important sign of strength of the buyers on Dollar Index. It indicates a highly probable bullish continuation, at least to the next key resistance.

Step 3:

Wait for a retest of a broken structure.

After a breakout, probabilities are high that a broken structure will turn into a strong support.

It can give as a perfect point to buy Dollar Index from.

how to trade dollar index dxy

Step 4:

Analyze 4H or 1H time frames, and look for a consolidation and formation of a horizontal range.

dollar index technical analysis strategy

After breakouts of key levels, quite often the market becomes exhausted. For the initiation of a new bullish wave, the market needs to accumulate buying orders. Such an accumulation makes the market form a range.

Step 5:

Wait for a bullish breakout and a candle close above the resistance of the range. It will confirm that a breakout of a daily structure is not false and that the accumulation of buying volumes is over.

dollar index analysis

Step 6:

Buy the market after a breakout of the resistance of the range or on its retest.

I recommend buying on a retest because it gives better reward to risk ratio.

Stop loss should lie below the lows of the range.

Take profit will be the next key daily resistance.

how to trade dollar index with technical analysis

Below, you can see the trading setup that we identified and traded with my students.

dollar index dxy trading strategy

  • Dollar Index broke and closed above a key daily resistance.

  • After a retest of a broken structure, the market retested that.

  • Retesting the broken resistance, DXY started to consolidate and formed a horizontal range on a 4 hour time frame.

  • Its bullish breakout was a bullish confirmation.

  • Long position was opened on a retest of a broken resistance of the range.

  • Stop loss was placed below the lows of the range.

  • Take profit - the next daily structure resistance.

If you do not trade Dollar Index, you can apply this strategy for making accurate forecasts, that can help to make wiser decision, trading different forex pair and other dollar related instruments.

And if you trade, DXY, trust me that strategy works phenomenally well and you can make nice profits with it.



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