Trading strong vs weak visualized and quantified, AKA relative currency strengths

Lately I have been charting with, and it’s really nice. In particular, there is an equation editor for symbols… it follows all the rules for fractions adding, taking reciprocals, multiplying, etc.

I use this function to chart out the currencies in their own respective “baskets” using the language of the US Dollar Index.

First thing is to get qualitative agreement with my procedure and the US Dollar Index.

I found that plotting the following, that I call the “US Dollar Sum” - remember here that as entered in the symbol tab 1/eurusd = usdeur, i.e. the tab automatically plots the reciprocal if entered backwards.

USDsum = 1/(eurusd+gbpusd+chfusd+audusd+nzdusd+jpyusd+cadusd).

I have read in other places (and have posted here myself) to calculate the US Sum one adds them as

USDsum = 1/eurusd+1/gbpusd+1/audusd+1/nzdusd+usdchf+usdcad+usdjpy

however, this does not reproduce the shape of the curve for the US Dollar Index. And if you think about it in terms of adding fractions, this is dead wrong. So I now add the currency pairs following the rules of adding fractions, seems obvious. There should be a chart below. There are two ways to add another symbol to a chart, as a comparison (share the origin at 0% change, and are plotted as % change), or simply added to the chart (plotted with absolute price). Both are shown in the figure.

green plot is adding the numerators with differing denominators
blue plot is adding with common denominators, the way you should add fractions
red plot is the US Dollar Index

So the currencies are entered as follows:


And it looks like:

I have my color code memorized since I use this so much
The US Dollar Index is hidden
USD = blue, EUR = red, GBP = white, CHF = purple, JPY = green, AUD = orange, NZD = pink, CAD = yellow.

I have (from left to right) the daily, 4 hr, and 15 min charts on there.

Now you can see which currencies are moving the hardest and in which direction, so you have a pair (or a few) and a direction to trade in.

So take it a step further, finding setups with the aid of your favorite indicator, I like the RSI, but whatever…

You can look for paired overbought/oversold signals, or whatever your enter signal is, this can help you to time it really well, as well as timing your exits. For example, you see the Yen sum is overbought on the 1hr chart, and that the NZD is way oversold on the 1hr, then that’s a really good signal that the NZDJPY is headed for a turn around. You can also look for divergence with the RSI and a currency sum. It all still works.

I’ve had really good luck trading this way.


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