FX Strength Meter
The Currency Strength Meter an essential tool that helps you identify the strongest / weakest currencies and use them in different trading setups. It uses the crosses between all the major currencies to calculate their values for the past 24 hours. The option to view that data as a chart helps you to see not only what is the actual currency strength but also to see if it is decreasing or increasing. You can use the update button to get the most recent data.
Why do you need a currency strength meter?
We trade the forex market's daily and use currency strength data to help our trade decisions. Before we start explaining how the currency strength meter (CSM) works, let's try to explain what is a currency strength meter in the context of Forex trading . Understanding how currency strength changes and how these changes affect the value of currency pairs can help improve your forex trading outcomes. In order for this indicator to bring you your desired outcome, it is vital that you pair your trading with Forex strength meter with other indicators and chart analysis. The Very basic trading idea behind the indicator is, " To Buy Strong Currency And To Sell Weak Currency
Let's say that you have a trading idea to sell EUR. But does that necessarily mean that you need to sell EURUSD? And what will happen if at that moment USD is weak too? The price probably will not move significantly. So instead of choosing by default USD, you can use a currency strength meter and choose the strongest currency and sell that pair. Then you will be selling in a much stronger downtrend.
Choosing the right pair
Sometimes choosing the right pair can be straightforward. You get the currency that you want to sell or buy and then select the strongest or weakest currency and trade that pair. Or in different situations, you can just pick the strongest against the weakest. But what is the problem - in order to have strong or weak currency there is already a certain movement. After that movement, there is no guarantee that this movement will continue or a correction will follow.
Let's say we want to buy EUR and take the picture above as an example. Then at that moment if we choose the weakest currency that has to be the USD. But there is one interesting thing - the USD weakest, but it is climbing and it is climbing fast. So maybe there is some trend and choosing that currency may give worse result if we buy against the GBP. It is not the lowest currency, but it is moving down.
Can we use currency strength for timing or main entry signal?
The general purpose of this indicator is as a signal, so the answer should be no. But on the other hand, you may be a very creative person and you can discover a new way of using the indicator. The main reason why this can't be the main signal is that it has no predictive value. It shows only what happened on the charts. If there is a downtrend, one currency will be up another will be down. But what does that mean? Will it continue to go up, or will it go down. Both things can happen. The main purpose is to filter the signals and help you choose the right instruments. Maybe you remember several cases when you want to sell the USD for example and you buy EURUSD, and nothing happens, but on the GBPUSD there is a huge movement in your direction. In such cases, you know that you made the right analysis, but you choose the wrong pair. This is the case when you need such a tool, so you can improve your profits.
The currency strength meter is a great tool that can be a filter, confirmation signal, or just a helper. It can't be used on its own but it can help you choose the right currency pair and improve your trading results. Also, it is important to choose the right period- if you are an intraday trader, you can watch the 24h chart, but if you trend long-term movements, you need to watch the weekly chart.