Trading the strong against the weak! (currency strength)
Inspired by an indicator I found on stevehopwoodforex.com and the endless possibilities of tradingview.com I came up with this currency strength visualisation concept.
This may look like a mess, but the last few "bars" on the chart are holding some useful information!
I'm sure I'm not the first one on here to think of this and it's very possible the calculations can be improved, but I'm sure you guys get what I'm trying to do here.
Trading currencies that are gaining strength against currencies that are losing strength is obviously a good way to go, so this is an attempt to illustrate the increase/decrease in strength of a currency compared to 7 others, to help filter out those bad trades and get us into good ones for many pips of profit.
Now check out the chart. How often a year does a currency significantly change direction?
The strengthening and weakening of a currency as you can see can last for months. Realising this changed my trading forever.
My interpretation of the chart: Currencies that are significantly sloping away from eachother are candidates for trend trading. Currencies that run paralel to eachother are ranging and can be traded from the top of a band or channel to the bottom with confidence.
I hope this makes sence.
Thoughts anyone?
CHF = Aqua Blue (light)
EUR = Turqoise (darker)
GBP = Blue (dark)
AUD = Orange
NZD = Gray
CAD = Maroon Red
USD = Red
JPY = Yellow
Again, there could be a better way, but this works great for me.
You can easily duplicate this chart yourself for use on other timeframes and so. In the upper left corner of the chart you can see what I did. I added up all pairs containing a currency. For USD for example, you add pairs wherein your currency is the BASE currency by using "+USDJPY" and If it's the QUOTED currency, you will have to divide it's value by the BASE currency's value, which is obviously always "1", so you use "+1/EURUSD".
So you get something like this:
EURUSD+1/USDJPY+1/GBPUSD+1/AUDUSD+1/NZDUSD+USDCAD+USDCHF
Enter this in tradingview, and click on "line chart" instead of "bar chart" and you'll have what I believe to be a pretty reliable visual representation of the USD's strength, over time, compared to 7 other currencies.
Now click on the compare button in the upper navigation bar and enter the following currency, for example EUR:
EURUSD+EURJPY+EURGBP+EURAUD+EURNZD+EURCAD+EURCHF
Choose a color and hit compare again! You get where am getting at, right? This is JPY:
1/EURJPY+1/USDJPY+1/GBPJPY+1/AUDJPY+1/NZDJPY+1/CADJPY+1/CHFJPY
Now for GBP:
1/EURGBP+GBPUSD+GBPJPY+GBPAUD+GBPNZD+GBPCAD+GBPCHF
AUD:
1/EURAUD+1/GBPAUD+AUDUSD+AUDJPY+AUDNZD+AUDCAD+AUDCHF
CAD:
1/EURCAD+1/USDCAD+1/GBPCAD+1/AUDCAD+1/NZDCAD+CADJPY+CADCHF
CHF:
1/EURCHF+1/USDCHF+1/GBPCHF+1/AUDCHF+1/NZDCHF+1/CADCHF+CHFJPY
This may look like a mess, but the last few "bars" on the chart are holding some useful information!
I'm sure I'm not the first one on here to think of this and it's very possible the calculations can be improved, but I'm sure you guys get what I'm trying to do here.
Trading currencies that are gaining strength against currencies that are losing strength is obviously a good way to go, so this is an attempt to illustrate the increase/decrease in strength of a currency compared to 7 others, to help filter out those bad trades and get us into good ones for many pips of profit.
Now check out the chart. How often a year does a currency significantly change direction?
The strengthening and weakening of a currency as you can see can last for months. Realising this changed my trading forever.
My interpretation of the chart: Currencies that are significantly sloping away from eachother are candidates for trend trading. Currencies that run paralel to eachother are ranging and can be traded from the top of a band or channel to the bottom with confidence.
I hope this makes sence.
Thoughts anyone?
CHF = Aqua Blue (light)
EUR = Turqoise (darker)
GBP = Blue (dark)
AUD = Orange
NZD = Gray
CAD = Maroon Red
USD = Red
JPY = Yellow
Again, there could be a better way, but this works great for me.
You can easily duplicate this chart yourself for use on other timeframes and so. In the upper left corner of the chart you can see what I did. I added up all pairs containing a currency. For USD for example, you add pairs wherein your currency is the BASE currency by using "+USDJPY" and If it's the QUOTED currency, you will have to divide it's value by the BASE currency's value, which is obviously always "1", so you use "+1/EURUSD".
So you get something like this:
EURUSD+1/USDJPY+1/GBPUSD+1/AUDUSD+1/NZDUSD+USDCAD+USDCHF
Enter this in tradingview, and click on "line chart" instead of "bar chart" and you'll have what I believe to be a pretty reliable visual representation of the USD's strength, over time, compared to 7 other currencies.
Now click on the compare button in the upper navigation bar and enter the following currency, for example EUR:
EURUSD+EURJPY+EURGBP+EURAUD+EURNZD+EURCAD+EURCHF
Choose a color and hit compare again! You get where am getting at, right? This is JPY:
1/EURJPY+1/USDJPY+1/GBPJPY+1/AUDJPY+1/NZDJPY+1/CADJPY+1/CHFJPY
Now for GBP:
1/EURGBP+GBPUSD+GBPJPY+GBPAUD+GBPNZD+GBPCAD+GBPCHF
AUD:
1/EURAUD+1/GBPAUD+AUDUSD+AUDJPY+AUDNZD+AUDCAD+AUDCHF
CAD:
1/EURCAD+1/USDCAD+1/GBPCAD+1/AUDCAD+1/NZDCAD+CADJPY+CADCHF
CHF:
1/EURCHF+1/USDCHF+1/GBPCHF+1/AUDCHF+1/NZDCHF+1/CADCHF+CHFJPY