A Currency Strength Indicator is a tool that helps you understand the absolute strength of a currency trying to forecast the future trend. In this page I will provide more information about a Currency Strength Indicator for MetaTrader that I developed.
What is a Currency Strength Indicator For Metatrader
As you should know the value of a currency is always expressed in relation to another currency or commodity, we call it exchange rate.
For Example see the pair EURUSD, we express the value of USD related to EUR, 1.0638.
This means that with 1 EUR I can buy 1.0638 USD.
But what if I want the absolute strength of a currency?
The is what a Currency Strength Indicator (or Currency Strength Meter) is about.
A Currency Strength Indicator (or Meter) is a tool that tries to express the absolute strength of a currency so that you can compare this strength with the strength of other currencies.
There is no exact rule to calculate this strength but there are several ways that can help in the approximation.
Almost all methods involve some kind of analysis in all the pairs where a currency is present.
For example, if we want the strength of the EUR we will have to analyse what is the EUR doing in all its pairs: EURUSD, EURGBP, EURJPY, EURAUD, EURNZD, EURCAD, EURCHF.
This will allow to calculate the strength not depending on only one other currency, in other words it will express the strength of a currency across the board.
If you would like to read more theory about the Currency Strength Indicator you can read my other article .
I understand this concept can result hard at first but with some examples it will get easier.
How to Read a Currency Strength Indicator For Metatrader
Interpreting a Currency Strength Indicator is not hard.
The Currency Strength Indicator that I developed shows the strength of a currency with a line and there are some simple rules to read it.
There are a few ways to calculate the strength however the main generic rules are:
- a line going upwards means that the currency is gaining strength
- a line pointing downwards means that the currency is becoming weak
- flat lines, or almost flat, represent currencies that are maintaining the current strength
- a line above another one means that one currency is stronger than the other
- a line above zero is likely to have a bullish trend against currencies below zero and vice versa
Enough explanation or you will get confused, some examples in the next paragraph will help you out.
How to Trade the Currency Strength Meter
Considering the basic rules explained above, ideally you always want to trade a strong currency (or getting stronger) against a weak currency (or getting weaker).
The Currency Strength Meter indicator is versatile and depending on your trading style you can use it for both long term trading and scalping.
I suggest to use the Currency Strength Meter with some confirmation signal when trading.
Generally you want to trade:
- Diverging lines, that is where a currency is gaining strength and the other is losing strength
- Currencies in opposite sides, so one with the line above zero and one below
- BUY the STRONG and SELL the WEAK
Here we are with some examples.
Advantages Of Currency Strength Lines
As you can see in the examples the Currency Strength Lines Indicator can be very useful, in particular:
- it shows the strength of a currency across the board, confirming or not the price trend in a pair
- allows you to spot which currencies are strong and which are weak, so you can choose what pair to trade
- helps you understand if a trend is still strong or is exhausting
- helps you spot possible countertrends
Long story short, the indicator can be a helpful instrument for your trading and you want it in your tool case.
Where to Get the Currency Strength Indicator for MetaTrader 4
There are some Currency Strength Indicators around but I found the free ones slow and lacking options, some paid versions are either too expensive or not flexible enough.
Not being happy of what I found I developed my own indicator which I find more reliable and flexible to different trading styles.
How to Install and Backtest it
The installation of the indicator is very easy but you will need a mql5.com account. You can also try a demo for free before the purchase.
MetaTrader 4 has some known limitations in the backtesting of Expert Advisors and Indicators involving multiple pairs.
To test the features of the indicator you can download the FREE DEMO.
How to use the Indicator in an Expert Advisor
Being a developer and creating my own Expert Advisors I understand that you may want to use this indicator in your Expert Advisors. If this is the case please visit this page, it will help you in the process.
Having several possible settings I decided to create a separate page to explain the default parameter used, you can find it here.
Support – FAQ
I know this is a complex indicator and if you need any support please visit this page for the Frequently Asked Questions, they will cover the majority of problems and will point you in the right direction.