Currency Strength Meter for Larger x Monitors. Currency Strength Index Chart represents the rate of change price movement for the eight major currencies measured against other majors. App displays rate of change strengthening and weakening in relation to the other s as chosen by the user.
Percentage change of individual Forex pairs is calculated and then subsequently grouped with like kind. The rate of changes are then aggregated to produce a percentage change for each of the eight groups.
These eight rate of change aggregations are then plotted on the chart together which allows both quick comparisons and in depth analysis to be made of the underlying currencies. This page and entry level application here is intended only as an introduction into the measurement and analysis of currency strengths. It is intended as a very quick, no hassle way of seeing what is happening in the total Forex majors market. For instance at London open or New York open or New York equity open at the bottom of the second hour.
Or very often for returning users over the years, upon a high impact economic release like NFP to obtain a general idea of flows. So, the strength chart above is intended to provide a general idea of general flows or drastic sentiment changes. This application is really not intended to be analyzed on a minute-by-minute basis for short term decision making. As noted if this is in fact your intention, please obtain actual professional tools that use streaming data.
That is of course, if you do plan on making a career of this trading thing. You are in an introductory research phase.
Until a tool or method is deemed viable or at least possibly viable, it makes more sense to keep scanning the internet trying out free iterations. But, it is assumed researching traders that do find this type of tool and its type of analysis useful would then surely seek to graduate into a more robust, full featured application. As such, when an apprentice carpenter finally concludes that a hammer or saw are in fact both highly useful in the carpentry profession and always will be, he or she finally commits to purchasing their very own tools for the toolbox.
Or as opposed to another questionable, odd insistence that all tools should always be free? The value of this total market simplification is difficult to initially measure or project, but it seems obtaining tools that do so might be a second logical investment when beginning a trading career. The first logical investment, it would seem, is a proper machine or machines offering adequate display options with lotsa workspace for all supplemental correlated information.
The diversification, variance, and risk reduction these tools allow for should truly provide infinite realistic dividends throughout an entire career.
OBOS on lower time frames is often generally too risky as opposite trend entry points, or rather stop and reverse triggers. OBOS on lower time frames is generally best at serving as areas to begin thinking about taking some profit in a percentage of units.
These trend length relative overextensions and OBOS areas on higher time frames serve as possible indications for mean reversion strategies or to hedge risks. In depth observations of mean reversion on the Weekly time frame is provided further below in the last section.
The strength index chart in turn gives us money flow into or out of one major currency in relation to the seven others. There is an overwhelmingly high inverse correlation that takes place. The same applies to most all other CSMs. But as we know, the world and Forex market is comprised of more than just these eight major regions and currencies of course. Therefore, this perfect inverse correlation and zero sum property does not apply in reality outside of these applications.
But in large part as measured in total yearly FX volume, proceeds received from selling a particular major eight currency is immediately used to purchase any combination of other seven major currencies ….
An example to the contrary: When money flows out of a particular equity stock as an example, this does not necessarily mean those same funds will immediately be used to purchase additional, separately-measured equity …. Meaning, not any given single trade. An extreme, preferably extended sharp angle seems to indicate the introduction of Real Money Flow at and from that point.
Historically, continuation is high probability when these sharp slopes appear. This probability increases as the time frame increases assuming apples to apples comparisons with the angle and length of initial sharp slope being equal in relative terms. Or, using theses common retracements to re-enter by replacing some units that may have had their take profits quickly taken out. The slope angle percentage outweighs a lack of follow through space on strength charts like this.
Sharp slope is actually representative of something — Real Money Flow. Which means, it actually means something to most global professionals. These crossing lines, regardless of actual degree angles they form, are being promoted as some sort of magical phenomena.
Presumably intended to be repeated indefinitely using the same crossing cues each day. What in the world does lines crossing on an obscure CSM Indicator of which uses a uniquely-proprietary strength algorithm with formula settings that can be modified and tweeked by each user…. It is a chance happening representative of nothing, in general terms. Sure, it could sometimes represent massive money flow and opportunities in one or both underlyings.
But if massive incoming or outgoing flow is the entry parameter, then make this the parameter. By measuring angles, not crosses. Then why do so many vendors and so much marketing across the Internet advertise intraday buy sell signals solely upon some simple graphical output occurrence of some proprietary tool or proprietary modification? Like, for example, crossing of squiggly currency strength lines anywhere within its window at any slope?
Because, exactly like us, these vendors probably receive emails by the hundreds from customers and potential buyers endlessly seeking an easy binary solution. As if this actually exists or is actually possible … long term. New Retail traders believe a short term, intraday, technical, repeatable, binary method exists because vendors across the Internet all advertise and have always advertised that it does exist.
Nearly all of them. Nearly every commercial site or commercial listing we have all stumbled upon over the years advertise some form of a simple green light, red light system. Every one of these magical commercial Indicators or EAs is able to exploit some secret, overlooked technical glitch in any market to produce a binary signal of buy or sell at any time during the day.
Regardless of any fundamentals. Adding to it, these thousands of unique applications are nearly all different with their modes of action. But yet, somehow magically each exploiting its own unique discovery of a market glitch to produce windfall profits for all who install. Customers demand these exact binary short term signals.
And most importantly, appear simple to apply. Our brains subconsciously-aggregate all of this scam marketing to equal factual reality. Tell me exactly when to Sell. I want to outsource my decisions. I want to outsource my thinking altogether. When we try to use technical trigger points from proprietary tools with black box formulas and settings, we are completely removing arguably the most important equation factor.
They are obviously proprietary and somewhat black box. Increasing our risk threshold per pair and increasing our take profit goals will help allow trading more in sync with the institutions.
How do we know they even want us as friends? Well they are letting us follow them around everywhere they go just a few steps behind. They are even leaving a breadcrumb trail just for us. So then to keep up we need the same longer term outlooks and take profit ranges. We reduce effective per position leverage by trading from a larger pool.
Per decision risk is reduced by increasing number of entry and exit units per position. Jumping onboard using the same daily charts with same key levels and same key moving averages allows for clarity of charts and clarity of objective.
All the noise and meaningless technicals from all of the shorter time frames just fall away. What we are usually left with then are obvious, sustained megatrends most everywhere we look.
Now we can make decisions based on the obvious patterns and clear trends we see directly on the chart. When we finally decide to just go with the flow and go with global herd, we can then finally stop obsessing over trying to select the perfect combination of time frames and fibonacci and bollinger bands and donchian channels and elliot wave theories and moving average crosses and secret modified templates downloaded from ForexFactory.
We can stop endlessly obsessing over creating the perfect short term repeatable technical system to beat the market once and for all. Instead, we can just learn to make high probable and logical decisions based on what we see the Institutions doing directly and clearly on our charts.
Maybe we all inherently believe that luck will be on our side, by default? Maybe this unwavering optimism and hope has been bred into our DNA. Despite astronomical odds, we are all lucky enough to be alive right here, right now, at this exact moment in history? Well then surely this incredible generational luck will carry over into something as simple as capturing 10 pips in the EURUSD a few times each day. Cuzz I mean why would this long sustained trend of uncanny luck my ancestors and I have enjoyed through millennia … stop right now, all of the sudden?
FX, above all other markets, is reliably susceptible to daily, weekly, and monthly mean reversion of both buy side and sell side due to zero sum theoretical logic with week and monthly presenting lowest risk.
Well actually, while week and monthly offer the lowest risk as it is defined here because we are specifically discussing the above strength chart that includes a fixed width property, this is not necessarily true of time frames in general. It is not the action of increasing time frames that reduces risk linearly. Accordingly then, the support and resistance levels with the longest lookbacks offer the lowest risk.
So, if the chart or your view of the chart has a fixed width, like in the above index chart, you are more likely to see the highest resistance and lowest support if the time frame is higher and the zoom is the least. Hence, higher time frames present us with the lowest risk opportunities. Since I do not personally intend on holding positions for 7 years to 20 years, let us consider the weekly time frame as the highest rather than the monthly.
Also with many brokers providing MT4, their monthly data tends to be severely lacking. Amount of weekly history available usually gets us back to at least But, while your weekly charts beginning some time in the s should be sufficient in establishing highs and lows, I still have access to a library of max charts from our traditional brokerage ETrade. This is definitely suggested before ever building mean reversion positions from what appear to be absolute highs or lows.
While this strength chart is a good introduction tool into mean reversion methods and a nice, quick reference to get a general idea of possible opportunities in the underlying currency as a whole, it is obviously recommended to study actual individual pair charts before making any decisions.More...