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

Comments

Hi how do you create this indicator is it available on trading view?
+67 Reply
does it really work????
+39 Reply
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
+9 Reply
what..download?
+8 Reply
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.
+7 Reply
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?
+5 Reply
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?
+4 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)
+10 Reply
I tried the USD and compared it with US Dollar Index, the graph looks different. any thoughts why?
Reply
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