safv6

Trading the STRONG against the weak! (currency strength calc)

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.

*Please hit the zoom-out button once*
(or more if you're feeling wild)

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. My apologies for the messy work though, because the chart gets scrambled when you move it, the text moves all over the place and the calculations are probably completely wrong, but I'm sure you 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? Who out there was/is still shoring the USD, AUD and CAD and buying the EUR, JPY and CHF on the hourly, 4-hourly and daily TF's right now?

I know I haven't. I have been and will be only buying CAD, AUD, USD and now also GBP and NZD and I will be only selling EUR, JPY and CHF until the direction significantly changes. Which could of course happen at any time for all I know and when it does we look to trade that currency only the other way and count the money we made on the long run we just had!

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 sense.
Thoughts anyone?

Cheers


CHF = Aqua Blue (light)
EUR = Turqoise (darker)
GBP = Blue (dark)
AUD = Orange
NZD = Gray
CAD = Maroon Red
USD = Red
JPY = Yellow
I really appreciate this illustration, it helps neglect noise. Thanks
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As the chart shifts everything seems to get scrambled and the text won't display right behind it. But you probably get what I'm trying to say here, right? The calculations are probably very wrong. But still it works for me and I thought maybe some of you may find this idea interesting too :P
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Excellent idea - thanks for sharing it. BTW, where is the 'zoom out' button?
+1 Reply
In the middle of the chart, below. The "minus" button, next to the "plus" button and the arrows.
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Great Work, Man! thank you and God bless
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Great idea!! Thanks!
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My team and I are now using this graph daily! Please keep it available, we LOVE it!
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HELEN0918 ascension
@ascension, how can it be into daily ?
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Thanks for your chart. This is a performance chart of the differents currency index. Your interpretation is good, you have to find the negative correlation between the differents currency index to find the acceleration points resulting from the combination of two indexes to build the currency pair. Indeed we have being developing a software based on this tool and that calculate quantitatively the correlations of each index, if want more info just email me at: augusto.hernandez@highwave360.com
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ascension PRO augusto.h
Great, I've sent you an email :-)
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It is a great idea, and absolutely useful for inspecting the trend. Is it possible to get the script for using in TradingView charts under different conditions. For example, at different time frames, or overlaying on charts to see how it can predicts the trends.
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He there traders!

I have been receiving PM's about what script is used and so on, so I thought I would clarify. There is none. 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, weighed against 7 other currencies.

Now click on the compare button in the upper navigation bar and enter your next 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

I hope this makes sense! :P

Cheers!

Saf



Oh and here's an updated version:
Trading the strong against the weak! (currency strength)

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safv6 safv6
Forgot the kiwi:
NZDUSD+NZDJPY+1/GBPNZD+1/EURNZD+1/GBPNZD+1/AUDNZD+NZDCHF+NZDCAD

:)
+1 Reply
Hi, Could you add a momentum oscillators like RSI(14) under the same chart and republish again?
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safv6 HamedAghajani
Hi Hamed, I would love to, but what would it be based on? I mean, there's 8 currencies on the chart, so what should the oscillator be indicating?

Best regards,
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copperhead HamedAghajani
I just did but you need to do each currency individually
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This is really fantastic, and so simple. When I recreate it, I cant replicate all of the lines originating from a central point on the left hand side axis, like you have above. Any ideas on achieving this? Thanks
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this is absolutely great. I remember that I once watched a video where someone held a web conference and was showing this exact same chart. He never said how he got this chart. I started looking for this and never found and indicator for this. After 8 years, I came across your post. I am going to give this a try. Thank you.
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Guys, thank you all for your kind responses. I have been expanding on the concept a little. You guys might want to check this multi timeframe version. I posted it here, but unfortunately the formulas are visible in the background, so here's a direct link to the chart also. If you're a pro user, it should display correctly.
New post on the subject:
Currency Strength: Trading the Strong against the Weak

Standalone chart (can be used as a dashboard): https://www.tradingview.com/e/EtXjrknx/
+2 Reply
How do I see the current price without keep clicking on the arrow button?
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safv6 CryptoCurrency Inc.
Try this link mate! https://www.tradingview.com/chart/lOrpBUBQ/
(might need to zoom in a bit)
Cheers
+1 Reply
The Key question is - From which date do you start comparing their relative strengths and why?

Because crucially, there are trends within trends... and selecting your starting date for comparison will skew the data one way or the other.
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safv6 max_andronichuk
That's really well said, Max! I can't really answer this question. It all depends on how long term you want your trades to be. I like to look at 1-6 month charts for my long term setups, but you can look at this in lots of different ways.
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How did you manage to add all those currencies with + sign, it doesn't work for me
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safv6 Berkut
Just enter a formula and then press the compare button and add another.
For USD, try: USDJPY*USDJPY*1/EURUSD*1/EURUSD*1/GBPUSD*1/GBPUSD*USDCAD*USDCAD*1/AUDUSD*1/AUDUSD*1/NZDUSD*1/NZDUSD*USDCHF*USDCHF
Make it a line graph by clicking on the cog button.
Then try to add AUD by clicking compare and entering: AUDUSD*AUDUSD*1/EURAUD*1/EURAUD*AUDJPY*AUDJPY*1/GBPAUD*1/GBPAUD*AUDNZD*AUDNZD*AUDCAD*AUDCAD*AUDCHF*AUDCHF
Note that tradingview has it's limitations. The actual formula for calculating correlations like this isn't allowed by tradingview, but I believe it should be something like this: Calculate: a × b, a2 and b2 for every value, then sum up a × b, sum up a2 and sum up b2 and then divide the sum of a × b by the square root of .
Because tradingview doesn't allow this I chose to post it like I posted it. By now I found the above to work even better, so I suggest you try that.
Here's a link to what it will look like (you might need to zoom in a little): https://www.tradingview.com/chart/lOrpBUBQ/
Good luck!
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Very nice way in interpreting the market! Thanks for the posting!
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very good just need to put name of currrency it is not clear for me nice work
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2 years ago, I found the MetaTrader4 version of that and I adapted it. It is indeed very useful!
+1 Reply
Where did you find it; is it possible for you to share?
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safvsix HamedAghajani
Hi Hamed,
Maybe you will find this one usefull: https://www.mql5.com/en/articles/1472
+2 Reply
mkgone safvsix
This version has some bugs when history bars are missing etc. (I used it already 3 years ago)
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Good work safv6 - I like what you have produced.
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Great work safv6!

Just wondering which time zone is this chart based on? Could you tell me what time does every 'new day' start?
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Is anybody on this thread still? I have been putting some thought into this. First, I think the arithmetic is not approached quite right. I believe that you must add the currency pairs as you would fractions, with a common denominator, and then take the inverse of that sum. For example, the USD Sum agrees with the US Dollar Index when approached as:

USD Sum = 1/(EURUSD+GBPUSD+AUDUSD+NZDUSD+1/USDCAD+1/USDJPY)

Following that, then the EUR Sum

EUR Sum = 1/(1/EURUSD+1/EURCAD+1/EURGBP+1/EURAUD+1/EURNZD+1/EURJPY)

and so on... I took this approach when I noticed the shapes of the USD sum and the USD index were in big disagreement. My first thought was that the fractions aren't added right.

This makes sense to me... just take an example with any numbers and look at the sums, you would add them as I have above, rather than adding with common numerators, and differing denominators. It seems as though this is more along the lines how the US Dollar Index is calculated, judging by the agreement in curve shape. I have a nice illustration, just no way to put the picture up...

Perhaps you could cut and past the different symbols into tradingview:

USDollar
1/(EURUSD+GBPUSD+AUDUSD+NZDUSD+1/USDCAD+1/USDJPY)
USDCAD+USDJPY+1/EURUSD+1/GBPUSD+1/AUDUSD+1/NZDUSD

You will see way better agreement between the inverse of the proper sum and the US Dollar Index, than with the sum with USD in the numerator (remember a fraction is a numerator over a denominator and you want to add fractions with a common denominator).

Either way gives you a great idea which currencies are broadly weak, strong, or stable. I have had great results since I started using this as a stepping stone to decide on pair and direction, then finding setups from there.

Any thoughts?
+3 Reply
forester forester
Tradingview takes the reciprocal automatically... so as entered "1/EURUSD" will be the same curve as "USDEUR" that's a really cool feature.
So the currency strength plot will be more straight forward to enter.

Plotting:

USD
1/(EURUSD+GBPUSD+AUDUSD+NZDUSD+CADUSD+CHFUSD+JPYUSD)
EUR
1/(USDEUR+CADEUR+GBPEUR+CHFEUR+AUDEUR+NZDEUR+JPYEUR)
GBP
1/(USDGBP+CADGBP+EURGBP+CHFGBP+AUDGBP+NZDGBP+JPYGBP)
CHF
1/(USDCHF+CADCHF+EURCHF+GBPCHF+AUDCHF+NZDCHF+JPYCHF)
JPY
1/(USDJPY+CADJPY+EURJPY+GBPJPY+CHFJPY+AUDJPY+NZDJPY)
AUD
1/(USDAUD+CADAUD+EURAUD+GBPAUD+CHFAUD+NZDAUD+JPYAUD)
NZD
1/(USDNZD+CADNZD+EURNZD+GBPNZD+CHFNZD+AUDNZD+JPYNZD)
CAD
1/(USDCAD+EURCAD+GBPCAD+CHFCAD+AUDCAD+NZDCAD+JPYCAD)
+7 Reply
I tried the USD and compared it with US Dollar Index, the graph looks different. any thoughts why?
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I think I agree with what you're saying, but not sure. Are you saying the original posters equation for say GBP is adding equations with denominators of different variables? So it would be like adding (x/y) to (y/x) and skipping the step to make the denominator the same?
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Kevin_Lomax PRO Kevin_Lomax
Ok haha, let's me explain a bit further. And instead of using quotes we can just use simple fractions. But to start, in original equation you're adding GBPJPY to GBPUSD and so on, so you're adding different currency values like Yen to USD. It still gives an idea of the movement of currencies but you're right, it's probably not as accurate as it could be. Ok, let's use a simple fraction example to make sure we're saying same thing. Basically original math is saying like (1/3) + (3/1) = 4/4 (adding both denominators directly). When In reality the proper fraction addition would be (1/3) + (3/1) = (1/3) + (9/3) = 10/3 ? Let me know
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Hi Guys this really impressive work, thanks for sharing this.
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This indicator is along the same lines as the one I developed for commercial purposes. My AccuStrength currency strength meter is windows software and will give you more options, but the general idea is the same. Paying attention to the actions and reactions of the various currencies on their own just makes sense. Whether a currency trader gets a free, or commercial strength chart, it is a valuable tool to have. More data to make a decision with. No. It is not a magic gizmo. It should be a crucial part of every forex strategy.
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ChaosTrader63 canadiantom
I like your AccuStrength and I will probably purchase it as I am using a free one at the moment but I'm sure your data is more reliable and up to date. Thanks!
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Great work! Tx a lot, i have compared the currencies, but the problem im facing is that in the left axis scale, the start point of the lines not appear at 0%, they appear all in random places do you know how to fix it?
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BrunoD BrunoD
I figure it out!

There is any chance to add the RUB and MXN?

tx a lot, Bruno.
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Interesting work
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Where's the zoom out button?
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Where can I get the script for trading view? Can you send me an email as well
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Would the idea be that you would trade an appropriate currency pair? For example, if the USD is showing strong and the JPY is showing weak, you would trade the USD/JPY pair, going long? Or if CAD is strong and USD is weak, you trade the USD/CAD, going short?
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dear safv6 could you please explain more your idea; i know i should buy the strong on the weak but how to use the calculator to do that.regards
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Great stuff. It's in my favourites bookmarks. Only if there is a way of avoiding to scroll down to check which one is which because by the time I do it, I forget what I was about to check ;-)
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WINSTON2016 memyself
@memyself, has this currency strength chart been updated recently , im not sure the best one to use forestor had posted new inputs

what one is the best cheers ally
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You can get two styles of currency strength chart I developed from http://www.forexgrail.com which is a starter type of currency index using the DDE from MT4 as the data source. The second piece of Windows software is called the AccuStrength. Website http://www.accustrength.com The accustrength has its own built-in data from sources most small traders could never afford on this own. Yes, they cost money, but they will save you a lot of time and energy trying to reinvent the wheel. This is a money-laden business so investing in your tools is perfectly in line with speculation. It is not the end all and be all, but a well designed and properly calibrated currency strength indicator will get you in earlier and out faster. The FX4Caster is a one time purchase and the AccuStrength is a subscription model because of the data included with it.
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