I used to think that finding the strongest and weakest currencies and trading that pair made sense. But it doesn’t at all.
What a currency strength meter will show you is the difference in directional movement, strength of the moves and for how long. So you would see the currency which has made the most progress up and down and assuming this continues it should make sense to trade those two currencies.
Let’s look at three things in more detail.
Directional movement - each swing in any direction takes you closer to the trend reversal. Are the strongest and weakest currencies most likely to turn the currencies you should trade?
Strength - you know what they say about large candles. Sign of weakness
For how long - So a currency has been moving up for ages and takes the top spot on the meter. Do you want to buy that currency after everyone else already has and likely end up at the end of the trend when the banks sell against you?
Others use the strength meter the opposite way. They will look at the strongest currency and look for a opportunity to sell it knowing that it should be (overbought). And do the same with the weakest. This is a more plausible method but difficult to apply.
Moral of the story is. Trade supply and demand and you don’t need to bother with any indicator.
As I looked at my charts and looked at the CSM I started thinking that I might want to consider shorting the stronger currency and going long the weaker as each approaches areas of S&D.
This why I prefer the CSM like the following:
Easy to see what’s coming of the bottom and dropping off the top and different time frames.
Nice guitar. I am thinking perhaps there might be a use for the CSM in terms of picking reversals. However I’m thinking more along the lines of what Sam seiden refers to as the curve. He doesn’t explain what it is unless you are in a paid lesson but I think I have picked up enough hints to know what it is. It is how far along you are between the supply and demand distance of the higher tf trend. So for example if there has only been one swing up from higher tf demand zone you would be at the low end of the curve. At this location we have higher probability long trades. As you approach closer to higher tf supply the trades become higher risk.
I think the CSM might be useful in showing where each currency is on the curve. By showing the CSM of multiple time frames I would know easily which currencys have just started the curve and which are likely close to ending.
Instead of using a currency strength meter, you might want to look at the sentiment from various sources instead. Once you have an aggregate idea about how most retail traders are positioned for any currency pair, look to do the opposite.
Wait for price to reach a support or resistance level, watch the price action for signs of strength or weakness and execute.
I understand what you are saying, its like trading with the trend. This got me in to trouble enough times. by the time the trend was obvious, it usually ended up turning on me.
You can see it’s headed for a long term area of resistance. If this bounces off and comes back down then I know there would be some good opportunities to short USDCAD (buying the strengthening CAD and selling the weakening USD).
Obviously this is only a long-term projection, or even prediction, whereas SW is based on what has already happened.
Wao!
That was so strong!
However in my own opinion, having a feel of the present and future bias of the global economic trend and how it has influenced, and will influence the currency pair you are trading is of utmost importance!
That is what fuels the demand and supply for currencies, Global stocks and financial Instruments! For, Example: what is the impact of the Corona Virus so far on FX? If we don’t factor it into our trading plan, then we just might be in for some real-time, big surprise!
Have a great day and great trading!
Like MattyMoney said, Tradingview.
Mataf also has some Currency Index - Mataf
And https://www.mql5.com also has some USD Index indicators that allow you to alter and create your own index of EUR or AUD or whatever
And Meta Trader 5 terminal has Create Custom Symbol which can build an index.
BTW you may notice that the Mataf feed is Tradingview, but the charts are not identical.
