Currency Strength Indicator: 10 Tips To Master Trading (2024)

The currency strength indicator is the secret weapon of successful trading. Through this trading guide, our team of industry experts will reveal our proprietary currency strength indicators pack. You will learn why our in-house indicator is superior along with an unorthodox currency strength trading strategy.

Learning to use a currency strength meter can help forex traders execute their positions with a greater sense of precision. The value of any given currency pair (such as USD: GBP) will constantly change over the course of any given trading period. By combining the right forex trading tools with a robust currency strength trading strategy, you can immediately improve your daily trading outcomes.

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Looking at a chart to determine which currency is strong and what currency is weak can be quite confusing.

When you factor in the intraday noise or the multi-timeframe analysis things can get even more complicated. Other variables, such as geopolitics, alternative markets, and economic reports can also cause the value of a given currency to change very quickly.

Looking at the 15-minute chart, it appears the EUR is the strongest currency against the US dollar. However, when analyzing the same currency pair on the 1-hour and 4-hour charts, you have a new revelation. As we will explain throughout this currency strength trading guide, the time-specific time frames you are using as a trader can directly affect your trading outcomes

The new inputs can show you a different story and the EUR/USD may be in a severe bearish trend.

In the forex market, these types of conflict analysis happen all the time.

Conflicting signals on different time frames, and across different currencies is the norm.

When the forex charts do not clearly indicate the value of a currency, a currency strength indicator may be needed.

Before we reveal our currency strength trading strategy, let’s start by laying the foundation.

The entire goal of any forex trading strategy is to determine which currency pairs are about to change in value. If the dollar (USD) is about to increase in relative value while the Euro is about to decrease in relative value, forex traders will want to exchange their Euros in exchange for Dollars as soon as they possibly can.

Naturally, to develop a successful forex trading strategy, it becomes essential to know the strength of the underlying currencies at any point in time. Using currency strength meters, currency strength indicators, and other useful trading tools can help forex traders improve their strategies and remain ahead of the global market.

As the name suggests, the currency strength indicator is an MT4 custom-made indicator that is designed to reveal the strength of a particular currency pair against other peers. At the same time, the relationship between the currency pairs is organized according to their level of strength or weakness.

What this does is take the overall strength of the entire market so you can use it to your advantage. This will give you a trading opportunity that will combine the strongest and weakest forex pair. This combination is unique to the forex market and it allows you to get highly accurate trade entries.

There are many currencies in the forex market and the currency strength meter is a tool to help you determine the best pair to trade on any given day. It is important that traders use tools to assist them to make trading decisions because we want to eliminate as many unsuccessful trades as we possibly can.

The currency strength indicator MT4 will help you make sense of conflicting market trends.

However, not all currency strength indicators are created equal.

Some can be based on the rate of change ROC, or the RSI, or the CCI, or some type of Intermarket correlation.

If the currency strength formula is wrong, the whole strength readings will be misleading.

Our team of industry experts uses more than the change in price over a fixed period of time to calculate the currency strength. We use a proprietary trading formula that aggregates prices from multiple time frames and apply our own weightings to produce the most effective currency strength indicator.

Our proprietary formula to calculate the currency strength works better than all other free currency strength indicators combined. We offer a comprehensive approach to determining the value of the underlying currency, allowing traders to develop a dynamic strategy that delivers in various market conditions.

We’re going to demonstrate how this is possible by revealing how one of our team members trades with the currency strength meter.

Now, we will discuss how to use the currency strength indicator to:

• Determine which currency pair is the strongest/weakest.
• What is the most effective method to combine the currency strength values?
• How to time the market.

Basically, there are two standard methods to use the currency strength tool:

• As a trend-following tool.
• As a trend reversal tool.

When using the currency strength meter, we analyze each currency individually rather than currency pairs. The whole idea is to identify the strongest currency and the weakest currency so you can choose the right currency pair to trade.

Obviously, the basic idea behind the currency strength strategy is to buy strength and sell weakness.

Once we determine which currency is independently about to increase in value, we can easily determine which currencypairsare about to experience a value change.

Understanding the connection between individual currencies and currency pairs will be crucial for anyone using the currency strength meter, or who is forex trading in general.

In other words:

• Buying the strongest currency against the weakest currency.
• Or, Selling the weakest currency against the strongest currency.

See the currency heat map indicator below:

For example, the strongest currency pair right now is JPY, and EUR is the weakest.

The biggest potential deal is to sell EUR/JPY.

This is nothing more but a form of trading in the direction of the trend. Or, trading with the prevailing momentum.

Additionally, forex traders can wait until one currency shows an extreme strength reading and another currency shows extreme weakness reading and try to trade a reversal.

The second trading approach is riskier as currencies don’t have a real intrinsic value. Currencies are different than, say, gold, because gold is physically finite. Supply is necessarily limited. Currency supplies, on the other hand, can be changed by central actors (such as the central bank).

The risk is for the currency to continue getting stronger and stronger (weaker and weaker) and you’ll be stuck in a bad trade.

If you manage to lay hands on our in-house Currency Strength Indicators Pack you’re going to get a 3 in 1 indicator.

See below all 3 indicators in action:

Our currency heat map (part of the 3 in 1currency indicator) can help you gauge when a currency is losing its strength and a reversal is coming.

More on that below:

Our currency strength trading strategy can make you a better trader.

Understanding how currency strength changes and how these changes affect the value of currency pairs can help improve your forex trading outcomes.

You can either use it as a standalone trading strategy or simply use the currency strength meter as a confirmation tool.

So now the question is…

How to identify strong and weak currencies in forex trading?

We like to rely on our complex mathematical formula behind the Currency Strength Indicators Pack to measure the strength and weakness of a currency.

We use the currency strength indicator to pair the strongest currency against the weakest currency, so you can take advantage of the momentum from both sides.

For example, according to our Currency Heat Map indicator right now, GBP is the strongest currency and CAD is the weakest.

See the currency heat map below:

If we pair the two currencies, we end up with the GBP/CAD pair.

See forex chart below:

As you can tell buying GBP/CAD here would be a big mistake.

Why?

Buying here is like chasing the market after a big rally.

Our goal is to invest in a currency before it’s about to increase in value, not after.

As you can tell the currency strength indicator is meaningless if you don’t know how to properly use it.

Well, that’s what we’re going to reveal next, so stay tuned…

If you want to learn more about our proprietary currency strength indicator, here is a quick overview of its 3 main features:

1. Currency Strength Indicator – This indicator places itself in a separate panel and shows a diagram of strengths for each currency for the current time frame. It can show you how the historical changes in the currency strengths and what strength they have right now.
2. Currency Heat Map Indicator – this indicator can help forex traders analyze currencies from a global perspective. It shows all possible relationships between pairs and arranges and colors them according to their strength or weakness.
3. Currency Strength Color Desk – Gives you an overall view of the market in a compact view. By comparison with the other 2 indicators, this one works with all TFs and shows the summarized result info by painting currencies with different colors. It also provides a final recommendation for each currency, using all time frames for making assessments.

Now, what’s next?

Obviously, we’re going to show you how to combine all the 3 main features and trade like a pro.

At this point, we’re going to show you three different trading strategies that you can follow to properly read the strengths and weaknesses of the major currencies.

Note* Our proprietary indicator is so versatile that it can be used in more than one approach.

Strategy #1: How to Use the Currency Strength Indicator

We like to start things off with the currency strength diagram found below the chart.

Here’s how we like to use our diagram…

Also Check out how to identify personality strengths and weaknesses in trading.

As a general rule, we want the currency strength to print a new histogram bar with a different color above and below the zero line and at the same time or within a maximum of 2-3 histogram bars.

No better way to explain this than by showing you directly on the currency strength histogram.

See below:

Note* each color is associated with a specific currency.

The technical readings of the GBP/AUD chart also confirmed that buying the currency pair here is a good trade.

See the chart below:

According to our proprietary currency strength current measurements, we can distinguish the following:

• The NZD (turquoise) is the strongest currency.
• And, EUR (light blue) is the weakest currency.

However, there is an issue; we can see that it breaks the first trading rule.

The strength histogram doesn’t print NZD strength and EUR weakness at the same time or at least within the first 3 histogram bars. The NZD strength only appears after the EUR already printed 6 histogram bars of weakness.

So here’s the lesson that you need to learn:

The currency strength indicator can only help you if you know how to read it correctly.

Strategy #2: How to Trade with the Currency Strength Heat Map

We like to trade using the currency strength heat map to scalp short-term bursts of momentum.

The heat map can be used as a good barometer to gauge the short-term strength and weakness of currencies.

And here is how we use it…

According to the current heat map readings, NZD is the strongest currency against all other major currencies and CHF is the weakest currency.

As a result, we pair the two currencies and end up with NZD/CHF, which has a potential buying opportunity.

After a few hours of trading activity, here is the outcome of that trade:

The strongest currency continued to strengthen and the weakest currency continued to weaken.

Next…

Strategy #3: How to Trade with the Currency Strength Matrix

The currency strength matrix is based on the price action and the inter currency correlation.

In comparison with the other two strategies, the currency matrix will give us a more detailed view of the strength of the currency on multiple time frames.

Additionally, the matrix will also reveal the average strength across all time frames.

This will give us a brief overview of the overall currency strength and weakness.

The forex chart below will reveal how our currency strength matrix looks right now:

On a closer look, we can see that despite the fact that the CHF is the strongest currency, in the intraday time frames we can see a different story.

Here is how it works…

When all the time frames converge and point in the same direction you know we have a strong reading of the currency strength and weakness.

Let me explain…

If we study the currency matrix again, we can note that the USD is showing a constant reading across all of its time frames.

The different shades of green on all USD time frames show real strength. At the same time, the EUR is displaying different shades of red across all time frames, which means that it’s the weakest currency.

Here is how it looks on the chart.

See below:

Risk Management Using the Currency Strength Meter

In forex trading, effective risk management is crucial, and the currency strength meter can be a valuable tool in this regard. Here are two essential strategies for using the meter to manage risk:

1. Setting Precise Stop Losses and Take Profits: The currency strength meter aids traders in determining optimal levels for setting stop losses and take profits.
2. By analyzing currency strength dynamics, traders can identify potential reversal points and set stop losses just beyond these levels to limit potential losses. Similarly, the meter helps pinpoint potential targets for take profit orders, allowing traders to secure profits as currency strength dynamics evolve.
3. Real-Time Monitoring of Currency Strength: Forex markets are known for their volatility, and currency strength can change rapidly.
4. To manage risk effectively, traders should continuously monitor the strength of the currencies involved in their trades. Having predefined exit strategies based on currency strength shifts is essential. If the meter indicates a reversal in a currency’s strength against a trade, it may be wise to consider exiting the position promptly to minimize losses.
5. The currency strength meter serves as a dynamic risk assessment tool, empowering traders to make well-informed decisions in response to evolving market conditions.

Currency Strength Indicator FAQ

Final Words – Best Currency Strength Meter

Understanding currency strength will be key for developing a long-term forex trading strategy. The strength of a currency is a clear indicator of whether corresponding currency pairs are about to experience a change in value. The currency strength index, the currency strength meter, and other currency strength indicators will directly affect your ability to determine whether a relative value change is likely to occur.

The currency strength indicator can be very appealing especially for beginner traders who are still in the process of learning how to trade. This is the best currency strength meter that you’ll ever find as in order to give you accurate readings of the currency’s strength we use 56 charts simultaneously into our proprietary formula.

Here is a secret all forex traders need to know. Instead of trading currency pairs, try trading individual currencies as a whole. To accomplish this you will need to determine the strongest and weakest currencies to trade. And here is where our proprietary Currency Strength Indicators Pack comes into play.

If you want to learn how to find the strongest and weakest currency to trade, lay your hands on the Currency Strength Indicator.

Thank you for reading!

Feel free to leave any comments below, we do read them all and will respond.