There are many ways to measure the strength of currency pairs. One such way is to use the RSI indicator and compare the strength of one currency pair versus another. Another way might be to use Stochastic to determine which currency pair is overbought/oversold compared to another. I don't measure the strength of one currency pair versus another I measure the strength of each currency by itself. Here is how I do it:
When measuring the strength of each currency I look at the time frame I am trading such as the 15 minute time frame. I then take each currency pair and look to see if it is above or below the 200 period moving average. I then compare each currency pair against all major and major crosses. Then by using an algorithm I separate the currency pairs into individual currencies which then gives me the strength of each currency by themselves.
I think this is important to do. Why? Because when I chose a currency pair to trade I want to match up a strong currency with a weak currency. In doing so I increase the probability this currency pair will be trending with more momentum than the other currency pairs resulting in a strong trend. Note: When two weak currencies or two strong currencies are matched up together the probability is higher that the currency pair will move sideways or trend in a very shallow up of down direction indicating a weak trend. A weak trend increases the probability that the direction can easily turn against the direction of my position. Whereas, in a strong trend the probability is greater that the direction of the trend will continue.
The result of my analysis is shown in the chart. 100 equals the strongest currency and 0 equals the weakest.
When measuring the strength of each currency I look at the time frame I am trading such as the 15 minute time frame. I then take each currency pair and look to see if it is above or below the 200 period moving average. I then compare each currency pair against all major and major crosses. Then by using an algorithm I separate the currency pairs into individual currencies which then gives me the strength of each currency by themselves.
I think this is important to do. Why? Because when I chose a currency pair to trade I want to match up a strong currency with a weak currency. In doing so I increase the probability this currency pair will be trending with more momentum than the other currency pairs resulting in a strong trend. Note: When two weak currencies or two strong currencies are matched up together the probability is higher that the currency pair will move sideways or trend in a very shallow up of down direction indicating a weak trend. A weak trend increases the probability that the direction can easily turn against the direction of my position. Whereas, in a strong trend the probability is greater that the direction of the trend will continue.
The result of my analysis is shown in the chart. 100 equals the strongest currency and 0 equals the weakest.
To learn how to perform this strength of currencies analysis for yourself go to the following link: www.dailyfx.com/fore...Weak_Currencies.html