Currency Strength Meter 14/06/21
What is the currency strength meter?
The currency strength meter is a bi product of the strength and weakness chart (pictured right) we produce on a weekly basis. This monitors the changes in the strength and tracks them on a meter so we can identify if a currency is getting stronger or weaker over time. This enables us to identify trading opportunities in the forex markets.
What is the strength and weakness chart?
The strength and weakness chart is built by identifying the trends on each currency pair and giving the pair a score. For instance, if the EURUSD was in an uptrend making higher highs and higher lows we would score the chart in favour of the Euro. If the EURUSD was in a downtrend we would score the chart in favour of the USD. If the market is in a range, then no currency will receive a score. If the Euro is trending up against most currencies, then we know it is strong and will look to buy it against weaker currencies.
Strength & Weakness Chart 14/06/21
How can it help you?
Before we explain how it can help you it is important to understand why we want to identify a trend in the forex markets. A trending market is much easier to trade than a ranging market as the moves are more predictable. Also, there is a healthier risk to reward profile when trading a trend allowing more room for error. We believe that it does not matter what strategy you use if it’s in a trending market you should make profit. Our strategies at LIONHEARTFX are all based around trends, so the strength meter is an important part of our analysis. If we can spot where a trend is most likely to form, then we have more opportunities to trade.
How does it work?
For the example below we have separated the data to show the Australian Dollar (blue line) and the Japanese Yen (orange line) on the currency strength meter. On the 16th November 2020 the Australian Dollar crossed above the Japanese Yen showing it was the stronger currency out of the two. Since this occurred the AUDJPY market formed an uptrend moving over 830 pips. Using the information we could use our forex trading strategies to trade with the trend. This is just one way we can use the currency strength meter to find opportunities.