The currency strength indicator is the secret weapon of trading success. Through this trading guide, our team of industry experts will reveal our proprietary currency strength indicator pack. You’ll learn why our internal indicators are superior along with our foolproof currency strength trading strategy.
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Looking at charts to determine what currencies are strong and what currencies are weak can be quite confusing.
When you factor in intraday noise or multiple time frame analysis, things can get even more confusing. If you throw into the mix the actions of the same currency against a group of other currencies, you realize that determining the strength of a currency is not an easy job.
It may happen on the 15-minute chart EUR is the strongest currency against the US dollar. However, when analyzing the same currency pair on the 1-hour and 4-hour charts, you have a new revelation.
New inputs may show a different story and EUR/USD may be in a significant downtrend.
In the forex market, this type of conflict analysis happens all the time.
Conflicting signals on different time frames, and across different currencies are the norm.
When the forex chart can’t clear currency strength, that’s where the currency strength indicator comes into play.
Before we reveal our currency strength trading strategy, let’s lay the groundwork first.
What is a Currency Strength Indicator?
As the name suggests, the currency strength indicator is a custom MT4 indicator designed to reveal the strength of a particular currency pair against other peers. At the same time, the relationship between currency pairs is organized according to their level of strength or weakness.
The MT4 currency strength indicator will help you understand the opposite market trends.
However, not all currency strength indicators are created equal.
Some can be based on the rate of change of ROC, or RSI, or CCI or some type of Intermarket correlation.
So the formula to calculate the strength of the currency meter.
If the currency strength formula is wrong, the overall strength reading will be misleading.
Our team of industry experts uses more than price changes over a fixed time frame to calculate currency strength. We use a proprietary trading formula that aggregates prices from multiple time frames and applies our own weighting to produce the most effective currency strength indicator.
Our proprietary formula for calculating currency strength works better than all other currency strength indicators combined.
We’ll show how that’s possible by revealing how one of our team members trades with a currency strength meter.
So now the question is…
How to use the currency strength indicator to:
- Determine the strongest / weakest currency pair
- What is the most effective method of combining currency strength values
- How to time the market
How to Use the Currency Strength Meter
Basically, there are two standard methods of using the currency strength tool:
- As a trend-following tool
- As a trend reversal tool
Let me explain…
When using the currency strength meter, we analyze each currency individually and not currency pairs. The whole idea is to identify the strongest currency and the weakest currency so that you can choose the right currency pair to trade.
Of course, the basic idea behind a currency strength strategy is to buy strength and sell weakness.
In other words:
- Buy the strongest currency against the weakest currency
- Or, Selling the weakest currency against the strongest currency
Check out the currency heat map indicator below:
For example, the strongest currency pair right now is the JPY, and the EUR is the weakest.
The biggest potential deal is selling EUR/JPY.
This is nothing but a form of trend direction trading. Or, trade with the current momentum.
Additionally, forex traders can wait until one currency shows extreme strength readings and the other currency shows extreme weakness readings and try to trade a reversal.
The second trading approach is riskier because currencies have no real intrinsic value.
Here’s the thing…
The risk is for the currency to keep getting stronger and stronger (weaker and weaker) and you will get stuck in a bad trade.
If you manage our in-house Currency Strength Indicator Pack, you will get 3 in 1 indicators.
See below all 3 pointers in action:
Our currency heat map (part of the 3-in-1 currency indicator) can help you gauge when a currency is losing strength and a reversal is coming.
Currency Strength Trading Strategy
Our currency strength trading strategy can make you a better trader.
You can use it as a standalone trading strategy or just use it as a confirmation tool.
So now the question is…
How to identify strong and weak currencies in forex trading?
We like to rely on our complex mathematical formula behind the Currency Strength Indicator Pack to measure currency strength and weakness.
We use currency strength indicators to pair the strongest against the weakest, so you can take advantage of momentum from both sides.
For example, according to our current Currency Map indicator, GBP is the strongest currency and CAD is the weakest.
Check out the currency heat map below:
If we pair the two currencies, we pair with the GBP / CAD pair.
See the forex chart below:
As you can tell buying GBP/CAD here would be a big mistake.
Why?
Honestly, buying here is like chasing the market after a big rally.
As you can tell the currency strength indicator means nothing if you don’t know how to use it properly.
Well, that’s what we’re going to reveal next, so stay tuned…
If you want to know more about our currency strength indicator, here is a brief overview of its 3 main features:
- Currency Strength Indicator – This indicator places itself in a separate panel and shows the strength diagram for each currency for the current time period. It can show you how historical changes in currency strength and what strength they have now.
- Currency Heat Map Indicator – Very helpful to see market conditions globally. It shows all possible relationships between pairs and arranges and colors them according to their strengths or weaknesses.
- Currency Strength Color Table – Provides an overview of the market in a compact display. In comparison to the other 2 indicators, this one works with all TFs and shows summarized result information by drawing currencies with different colors. It also provides a final recommendation for each currency, using all time frames to make an assessment.
Now, what comes next?
Obviously, we’ll show you how to combine all 3 key features and trade like a pro.
At this point, we will show you three different trading strategies that you can follow to correctly read the strengths and weaknesses of major currencies.
Note * Our proprietary indicator is so versatile that it can be used in more than one approach.
Strategy #1: How to Use the Currency Strength Indicator
We want to start things off with the currency strength diagram found below the chart.
Here’s how we use our diagram…
As a general rule, we want currency strength to print new histogram bars with different colors above and below the zero line and at the same time or in a maximum of 2-3 histogram bars.
There is no better way to explain this than by showing it directly on a currency strength histogram.
Note * each color is associated with a specific currency.
A technical reading of the GBP/AUD chart also confirms that buying the currency pair here is a good trade.
See the chart below:
According to the strength of our proprietary currency at the time of measurement, we can distinguish the following:
- NZD (turquoise) is the strongest currency
- And, EUR (light blue) is the weakest currency
However, there is a problem; we can see that it violates the first trading rule.
The strength histogram does not print NZD strength and EUR weakness at the same time or at least in the first 3 bars of the histogram. NZD strength only appeared after the EUR had printed a 6 bar histogram of weakness.
So here are the lessons you need to learn…
Currency strength indicators can only help you if you know how to read them correctly.
Next …
Strategy #2: How to Trade with the Currency Strength Chart
We like to trade using heatmap currency strength for short-term breakouts of momentum.
A heat map can be used as a good barometer to gauge short-term currency strength and weakness.
And here’s how we use it…
According to the current heatmap reading, NZD is the strongest currency against all other major currencies and CHF is the weakest currency.
As a result, we pair the two currencies and end up with NZD/CHF, which is a potential buying opportunity.
The strongest currencies continue to strengthen and the weakest currencies continue to weaken.
Strategy #3: How to Trade with the Currency Strength Matrix
The currency strength matrix is based on the price action and correlation between currencies.
In comparison to the other two strategies, the currency matrix will give us a more detailed picture of currency strength on multiple time frames.
In addition, the matrix will also reveal the average strength across all time frames.
This will provide a brief overview of the overall currency’s strengths and weaknesses.
The forex chart below will reveal how our currency strength matrix looks now:
On a closer look, we can see that although the CHF is the strongest currency, on the intraday time frame we can see a different story.
Here’s how it works…
When all the time frames stack up and point in the same direction, you know we have a strong reading on the currency’s strength and weakness.
Let me explain…
If we review our currency matrix, we can notice that the USD shows a constant reading across all time frames.
Various shades of green on all time frames of the USD indicate real strength. At the same time, the EUR displays different shades of red in all time frames, which means it is the weakest currency.
Final Word – The Best Currency Strength Meter
The currency strength indicator can be very interesting especially for beginner traders who are still in the process of learning how to trade. This is the best currency strength meter you will find as to give you an accurate reading of currency strength we use 56 charts simultaneously into our proprietary formula.
Here are the secrets all forex traders need to know. Instead of trading currency pairs, try trading individual currencies as a whole. To achieve this, you need to determine the strongest and weakest currencies to trade. And this is where our proprietary Currency Strength Indicator Pack comes into play.