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What is Forex Currency Strength Meter?

AnalyticsTrade Team
AnalyticsTrade Team Last updated on 2 Jul 2023
Category: Forex
forex currency strength meter

Table of Contents

Forex currency strength meters provide real-time data for the current market trends, and the trader can decide which currency is overvalued and undervalued. This is also used as an excellent additional filter for technical forex analysis.

Traders use currency strengths to predict currency movements when making the best decisions for the best trading experiences.

It is a technical indicator that determines the relative strength of currencies in the forex market. This indicator is used for MT4, MT5, and other trading platforms. It can be found on online sites.

How does the forex currency strength meter work?

Most of you don’t know how the forex currency strength meter works. They work by measuring the strength of the main currencies, GBP, USD, EUR, JPY, CHF, CAD, AUD, and NZD, by comparing all of them, which are roughly 28 crosses between them. It is a quick and inexpensive way for forex traders to see whether the market conditions and how either positively or negatively they affect their positions.

Forex currency strength meter works by following five steps

  • Select the base currency.
  • Make a match of the base currency with all of the remaining ones.
  • Calculate the relative strengths of every paired currency formation.
  • Calculate the scoring average of the currency.
  • Use this result to form further calculations.

How to use the forex currency strength meter?

The strength meter can be used in many ways and usually depends on the trader’s trading style.

If the trader wants to trade in the trending direction, decide based on the pair with the biggest and weakest currency differences. If the trader is trading in a range, choose the currencies with a slight difference in strength.

Below is a forex currency strength chart from 20th September till today. The forex strength chart displays the currency differences based on the calculations of the above-made 28 forex currency combinations.

avoid mistakes when using currency strength meter
avoid mistakes when using currency strength meter

A correlational matrix can assist the trader in avoiding the conditions which cancel one another. A long trading pair position seems a little foolish to be considered for searching the different currency directions.

How to avoid mistakes when using currency strength meter?

The first mistake that most newbies make while using CSM is only using CSM. It is critical that you couple your trading using currency strength meter with other indicators and chart analysis in order for this indicator to produce the desired results.

The currency strength meter is only the base of your analysis; it simply assists you in filtering through the currencies that are now worth analyzing. Once you’ve determined your chosen currencies, it’s up to the chart to evaluate if it’s worthwhile to trade them.

Final thoughts

The currency strength meter is not completely correct. It is determined by the timeframe you select, therefore the longer the timeframe, the greater the accuracy.

Remember to consider the current status of the market; if it is rebounding from a large move, the currency strength meter’s data, no matter how precise, may be useless.

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AnalyticsTrade Team

AnalyticsTrade Team

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