Introduction to the Currency Strength Meter Indicator
One of the unique trading conditions of the forex market is that traders are trading a currency for another currency. Each currency individually has their own momentum and trend. Seasoned forex traders often pair the strongest and weakest currencies in order to gain a trading edge, and the Currency Strength Meter Indicator is a tool that can help new traders simplify this process.
What is the Currency Strength Meter Indicator?
The Currency Strength Meter Indicator is a custom technical indicator which shows traders the strength of a certain currency pair. The currency pairs that are preset in this indicator template are all paired with the US Dollar (USD). This means that this setup allows traders to compare the four currencies based on their movements relative to the US Dollar.
How the Currency Strength Meter Indicator Works?
The Currency Strength Meter Indicator simply retrieves the price movement data of the selected currency pairs. The price data retrieved is preset as the Close Price and is plotted as a fourteen period price movement. It then normalizes the price movements by plotting their movements based on pip or point movements instead of plotting it based on absolute price. This makes the currency pair movements more comparative and useful for forex traders.
How to use the Currency Strength Meter Indicator for MT4
The Currency Strength Meter Indicator allows users to select four currency pairs that it would plot its strength indications for. These currency pairs can be encoded on the “Instrument 1”, “Instrument 2”, “Instrument 3”, and “Instrument 4” fields. Users should type in the exact Symbol name used by the broker for it to work properly.
Since the indicator plots lines in different colors to represent each currency pair, it also allows users to modify the color used to represent each instrument. This can be modified using the “Instrument 1 Color”, “Instrument 2 Color”, “Instrument 3 Color”, and “Instrument 4 Color”.
This indicator also allows users to modify the parameters used to plot the currency pairs using the “Indicator Period” and “Indicator Applied Price”. The “Indicator Period” allows users to modify the number of periods used for plotting the price movements. The “Indicator Applied Price” allows users to select the price data source, whether it would be the Close, Open, High, Low, Median Price, Typical Price, or Weighted Price.
This indicator tells us which currency is the strongest and which is the weakest.
To use this indicator properly, there should be one currency which is a common commodity or term currency.
In this sample preset we are using the USD as the base.
This means that the currencies being compared are the EUR, AUD, NZD, and GBP. In this sample, we could see the strongest currency would be the GBP which is the topmost line, and the weakest currency is the EUR, which is the bottom most line. When paired together, we would see on the EURGBP price chart that the latest price action movement was a downward move. Traders can use this information as a basis for selecting a trade direction.
Conclusion
The Currency Strength Meter Indicator gives traders a hint which currency can be traded with high probability by pairing the strongest and weakest currency. However, it should also not be followed blindly. Price action and market structure should still be observed as price may still reverse on established support and resistance levels despite the currency strength.
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Currency Strength Meter Indicator for MT4