Unfortunately, the MT4 terminal doesn’t have an indicator that can analyze the strengths (or power) of currencies about each other. To correct this problem, a free Currency Strength Meter was developed. In this article, we’ll introduce you to the indicator.
Contents:
- Description
- Features
- How to use
- Conclusions
Description
The CurrencyStrengthMeter indicator (i.e., currency strength meter or meter) constructs four charts of currency pairs in live mode and displays the strengths of currencies about each other. Ticker symbols of financial instruments are displayed in the lower-left corner of the indicator’s window. The symbols’ colors match the chart’s color in the indicator’s window. The currency strength measurement scale is drawn up vertically and contains values from 0 to 100.
The base currency is the one that is quoted first in a currency pair, while the quote currency is the one that is quoted second. Using EUR/USD as an example, the EUR would be the base currency, and the USD would be the quote currency.
The closer the chart gets to 100, the stronger the base currency and the weaker the quote currency (upward trend). It makes sense to take into account the big picture of the market. So, if the indicator signals an upward trend, but the rising price movement is weak and unimpressive, it’s best to wait for more reliable buying conditions.
The same is true of the reverse situation: the closer the chart gets to 0, the stronger the quote currency and the weaker the base currency (downward trend).
Charts, which are close to 50, indicate that the strengths of currencies are roughly equal, and there is no clear trend.
Features Currency Strength Meter
When analyzing the strengths of currencies, the term “correlation” is usually used. Unfortunately, the MetaTrader 4 terminal doesn’t have an indicator that can compute the value of this parameter.
Correlation (dependence) is a coefficient reflecting the strength of the unidirectional or multidirectional movement of currencies. It can be inverse (different directions of trends) and direct (similar directions of trends).
The given parameter is often published online on the top financial websites. However, with the currency strength measurement scale built into the CurrencyStrengthMeter, you can monitor this dependence directly in the indicator’s window.
As in the above example, the charts of currency pairs are inversely correlated – it’s indicated by the fact that they’re near the values of 20 and 80 on the currency strength measurement scale.
As for the third case, both currency pairs are in the same direction, suggesting a direct correlation.
Thus, using the CurrncyStrengthMeter indicator, you can find in real-time which currency is most in demand among FX market participants and use it to develop your trading strategy.
How to use Currency Strength Meter
The indicator doesn’t generate signals to open trades but provides a common understanding of market positioning for the analyzed currency pairs.
This example shows that EUR/USD, GBP/USD, and NZD/USD currency pairs are above 50. This tells us about the strengths of EUR, GBP, and NZD against USD.
The chart of USD/CAD, which is moving in parallel to the above pairs, is below the 50 level – it suggests that USD is weak against CAD.
Therefore, by comparing the abovementioned currencies, USD is weak against every other. With this conclusion in mind, you can plan your Forex trading more efficiently.
When using this digital product, the priority of timeframes should be remembered. The chances of making profitable trades are higher on high timeframes. It does so by reducing the market noise. However, in theory, this timeframe will have fewer entry points.
On the contrary, there may be more entry points on a lower timeframe, but the quality of trading signals may be harmed due to the high volatility.
Conclusions
At first sight, the simultaneous use of four charts at once is too complicated.
You can eliminate this minor disadvantage by choosing fewer charts to be constructed or changing their visualization (thickness and style of lines).
After all, when you customize and check out the indicator, you’ll get used to it soon and quickly see its practical benefits in your trading system.
Currency Strength Meter Forex Indicator MT4 Free Download
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