Beyond the Greenback

There are two main elements that affect performance of international investments: the relative strength of the local stock market as measured by an index, and the strength of the local currency compared to U.S. dollars.

In an interesting twist, within the world of long-term trend-following, world markets are generally correlated, and while they tend to move in sync, they do so at very different rates.

If I had a dollar for every time the U.S. market inched up while international markets skyrocketed, and one for every time international markets slipped slightly while U.S. markets bottomed out, I'd be very rich.

It follows, then, that responding to trends in foreign markets can strengthen your investments and increase your profits.

Note that this is both an issue of safeguarding your portfolio and benefiting from the natural -- and unnatural -- movements of the markets.

To profit from these patterns, then, you want to invest in the stock markets of regions whose markets closely correlate with, and are stronger than, the U.S. market.

You also want to choose a currency that has trended in such a way that it typically gains in value against the dollar.

It is not difficult for trend-followers to find the strongest currencies.

Since you can plot the relationship between two currencies over time, you can apply all the same strategies used for watching trends in stock market indices, such as moving averages, trend lines and other technical analysis methods.

Though this may change over time, the standouts in recent years have been Australia and Canada.

Both countries have strong commodity currencies (or currencies that depend greatly on the export of certain raw materials) and stock markets that are heavy with resource and mining companies.

This is an advantage when gold and other metals are rising, as they most often do during dollar bear markets.