Why we can't directly use the strength of currencies for trading

Why we can't directly use the strength of currencies for trading

First, I want to open a parenthesis and say that the human brain is something unique, and it is possible that methods will be (or already have been) discovered that allow you to trade using only information about the strength of currencies. So, if anyone has discovered such a method, please excuse us, or correct us.

Some reasons why we can't directly use the strength directly

There are several reasons to believe that using the strength of currencies directly in trading is incorrect:

  1. The first reason is that to have a successful trade you need to have some good predictive value. Unfortunately, the strength of currencies only shows what has happened up to that point. It can do complex calculations, track 28 currency pairs, and convert but it shows what has happened. Assume the highest strength at a given moment is the EUR and the lowest strength at the same moment is the USD. They will be the furthest apart in the chart and in the chart of the EURUSD instrument itself we will have the biggest trend. But so, what? If we only look at the strength of the currencies, we will only see what has happened in the last 24 hours. We will have no information about what happened before that. Is this current trend a trend or is it a correction of a previous trend? It is much better after selecting EURUSD (as the most spaced pair in the example) to open the chart of the instrument itself to do an analysis and decide how, and whether to trade this instrument.

  2. The second reason is that by gaging only the strength of the currencies we have no information about the local and global extremes on the chart. We have no information where the logical targets and stops are.

  3. The third reason is that the news can totally mess up the shape of the currency strength chart. It is possible that news will come out that will send all currencies in different directions and then a low liquidity period will follow. During this period, we will see for a long time that one currency is highest, and another is lowest and this will only reflect one big move that is exhausted, and we are now in a range.


As a conclusion I would like to say is that the currency strength chart is meant to systematize and simplify a great deal of information and point us to the pair with the greatest difference in strength. But this systematization on the other hand deprives us of too much information to trade without it. So much better to use the information from the strength of the currencies as a flag for the instrument and form the trading strategy from the chart of that instrument.