Currency Strength Indicator in Trading View


Currency Strength Indicator in Trading View

Following currency strength is a very important aspect if you plan to be a successful forex trader.

Currency markets are influenced by macro economic events, and move differently than any other asset.

In today’s article I will share with you how to identify the relative strength of each currency in the forex market.

 

What is a Currency Strength Indicator?

Imagine you could know which currency is moving with the strongest moment?

Now what if you could also know the weakest currency at the same time?

You would therefore be able to buy the strong one while selling the weak.  This trade will have the most momentum and highest probability.

In simple terms, a currency strength indicator helps you find the biggest movers against peers.

By using a currency strength indicator you can trade the active market momentum and avoid all the chop and head fakes.

 

Building a Currency Strength Indicator – Euro as an Example

Now that you know the importance of the currency strength indicator, let’s show you how to build your very own.

First, you will need to sign in to TradingView and open a fresh chart.

If you want to learn more about Trading View, here is a great tutorial series I created >

Once you open a new chart, you can create the first currency strength line.

Each currency will have it’s own cumulative line, to show the strength against all other cross pairs.

Let’s start with the EURO dollar.

Therefore, you will now add all the major currency pairs that trade against the EURO dollar in the symbol field on Trading View.

The formula to input into the symbol section will look like this:

  • EURUSD + EURGBP + EURAUD + EURNZD + EURCAD + EURCHF

 

Building a Currency Strength Indicator – USD Example

Now let’s do the US dollar, which is a little more work.

Because pairs like the EURUSD use the US dollar for the base, you need to inverse the scale.

This is because you want to put the US as the main pair.  To inverse a currency you can divide 1 into it.

Essentially, 1 / (EURUSD) is equal to USD/EUR.

The formula to input into the symbol section will look like this:

  • USDJPY+USDCAD+USDCHF+1/EURUSD+1/GBPUSD+1/AUDUSD+1/NZDUSD

Notice how there is only a division on the pairs that do not begin with the US dollar.

 

Building a Currency Strength Indicator – All Formulas

Now that you understand the process, let’s put all the formulas onto one chart.

Be sure to remember to add a new comparison asset to the chart and adding every line below.

Every line is each currency strength indicator. You can color code each line on TradingView once it’s added to match the country.

For example, the euro is blue, Yen is red, etc.

  • USDJPY+USDCAD+USDCHF+1/EURUSD+1/GBPUSD+1/AUDUSD+1/NZDUSD
  • EURUSD+EURJPY+EURGBP+EURAUD+EURNZD+EURCAD+EURCHF
  • 1/EURJPY+1/USDJPY+1/GBPJPY+1/AUDJPY+1/NZDJPY+1/CADJPY+1/CHFJPY
  • 1/EURGBP+GBPUSD+GBPJPY+GBPAUD+GBPNZD+GBPCAD+GBPCHF
  • 1/EURAUD+1/GBPAUD+AUDUSD+AUDJPY+AUDNZD+AUDCAD+AUDCHF
  • 1/EURCAD+1/USDCAD+1/GBPCAD+1/AUDCAD+1/NZDCAD+CADJPY+CADCHF
  • 1/EURCHF+1/USDCHF+1/GBPCHF+1/AUDCHF+1/NZDCHF+1/CADCHF+CHFJPY

 

If you want to learn how to compare assets on Trading View, watch the video below.

 

How to Use a Currency Strength Indicator

Now that you have built your very own currency strength indicator it is time to use it in your trading strategy.

It is very simple to apply to you currency trading strategy.

 

There are four main trading applications:

  1. Buy strongest currencies against weakest currencies  (long momentum trades)
  2. Sell weakest currencies against strongest currencies (short momentum trades)
  3. Sell strongest currencies against weakest currencies (fading strong momentum, not advised for new traders)
  4. Buy weakest currencies against strongest currencies (reversing weak momentum, not advised for new traders)

 

Here is an example of the current currency strength indicator below.

You will notice that the USD (purple) is very strong, while the Japanese Yen (dark red) is very weak.

If you wanted to jump on board the trend, you would look for the next support level below to buy the USDJPY pair.

However, if you think the trend is likely to reverse you can fade by selling the strong US dollar while buying the Japanese Yen.

That is equivalent to long the USDJPY pair.

Currency Strength Indicator in FOREX Trading

Currency Strength Indicator in FOREX Trading

 

Currency Strength Indicator – Conclusion

These days the global stock markets are interconnected, and you should be following the relative momentum using the currency strength indicator.

Therefore, it is not about deciding whether or not you need to use one, but how to implement it to your strategy.

If you are a momentum trader, this currency strength indicator is gold for you.

Faders and scalpers will also find value in this tool on the lower time frames.

I would love to hear from you, how did you like this update and how do you plan to implement it to your FOREX trading strategy?

 

 

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The information contained in this post is solely for educational purposes, and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable to your own financial situation. TRADEPRO Academy is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.