A currency strength indicator leverages the fact that currency pairs are made up of two individual currencies, we will show traders several simple currency strength indicators, and show you how to profit from them When one currency is moving up and the other is moving down you can generate profitable trades on a real time basis real time or over longer time periods. It works on all of the major currencies like the USD, CAD, EUR, CHF, GBP, JPY, AUD, and NZD.
Currency Strength Versus Indicators
You cannot see what currencies are strong or weak when using typical indicators, which measure parameters for the entire pair, not the individual currencies. The Fibonacci, RSI and stochastics are unreliable and do not measure strength. Indicators like this cause great confusion among forex traders.
Excellent Currency Strength Indicator
There are two types of currency strength indicators, real time and cyclical. A real time currency strength indicator is for current market conditions and a cyclical strength indicator is for the large picture or overall market analysis. There are some very complicated currency strength indicators and some of them are quite simple and effective currency strength indicators.
This tool/indicator makes it obvious which currencies are strong or weak and gives any trader validated trade entries in real time. It works best when trading in the direction of the trends but can also be used for short term day trading or short term trading against the trend.
Two currency strength trading strategies are possible. Understanding the condition of the total market across various individual currencies is one, and the second strategy is using currency strength for entering trades.
You can determine which currencies are strong or weak in the overall market by looking at simple trend indicators on the larger time frames. For example if all of the JPY pairs are trending higher, you know the JPY is weak. Anyone can perform this type of analysis, even beginner traders, in 10-15 minutes or less. Exponential moving averages like these shown below, applied to larger time frames like the D1 time frame or W1 time frame will work just fine.
For example if the trend indicators above are applied to the JPY pairs and they are all trending up, it is obvious that the JPY is weak and you should be buying these pairs to make pips.
For managing your trade entries, you can also determine which currencies are strong and weak in real time using a simple currency strength indicator that anyone can read. See the example below. This is called The Forex Heatmap®.
In this example it is clear that the NZD is weak. This is not actually a strategy, just having the right indicators and using them correctly to make successful trade entries. Profitable forex trade entries are now possible with tools like this. Just match a strong currency with a real currency in real time and you have a potential entry.
This is an easy to interpret data visualization tool for real time currency strength that organizes the information from 28 currency pairs into a visual map of the market for accurate trade entry decisions. When you know the current market condition, naturally your trade entries will improve.
If you can match up an entry point with a pair that is trending you and safely enter the trends of the forex market and the trade will move into profitability in real time. You then have a chance to ride the trends for several days or possibly weeks in a trending market.
To round out your trading strategy and one more criteria. Support and resistance. If you enter a trade and there is no support or resistance nearby your odds increase again of making a lot of pips and holding on to the trade until you’re the next major support or resistance is hit on that pair. You can check support and resistance levels easily on any pair in just a couple of minutes.
Should Forex Traders Use Currency Strength?
Most definitely, yes. The primary reason for traders to use a currency strength indicator is that the alternative methods, like technical indicators, don’t work. You will never know when not to trade or when conditions are favorable to trade with indicators. Another reason is that you will always know the condition of the overall market using currency strength, and you will not have to click on a bunch of charts for a real time analysis of the market. Using currency strength and weakness keeps the emotions out of your trade decisions and emotions give way to using market logic to govern your trades. Currency strength trading is straightforward and any forex trader can learn it, even beginners.
To contact Mark Mc Donnell you can email him at Forexearlywarning.com.