{"id":412232,"date":"2019-09-17T11:56:51","date_gmt":"2019-09-17T09:56:51","guid":{"rendered":"https:\/\/ftmo.com\/forex-strength-meter\/"},"modified":"2019-09-17T11:56:51","modified_gmt":"2019-09-17T09:56:51","slug":"forex-strength-meter","status":"publish","type":"post","link":"https:\/\/ftmo.com\/fr\/forex-strength-meter\/","title":{"rendered":"Forex Strength Meter – How to pick the best trade!"},"content":{"rendered":"
We have received this very interesting article from one of our followers. The article starts with a brief explanation of FX movements, which serves as a good reminder to all. The main part of this article is dedicated to the analysis of a strength \/ weakness of any individual pair. This approach can be used for smaller and higher time frames, giving traders a possible idea of how to add a meaningful confirmation to their trading system.<\/em><\/p>\n Currency table<\/p><\/div>\n <\/p>\n The table above is showing the most common scenarios that happen to a currency pair price when individual currency strength shifts from a stronger to the weaker stage. If we can understand the individual strength and weakness of a currency, we will get an edge on trading the currency pairs of that currency. We will be able to decide on continuation or reversal forecasts. We will be able to take advantage of the pullbacks of a trend, slope lines of a channel and volatility\/spikes of a range. As of 2019-08-16 below are the rates of the common GBP pairs:<\/p>\n Now, if our existing system or our existing analytical method produces an opportunity of going long or short on any of the GBP pairs, a holistic view can help us to make more confident decisions. The image below is showing charts of 8 GBP pairs. The charts are of daily (1D or D) timeframe and are showing the period from mid-July to mid-August. The 2nd chart from left is showing EURGBP. We have to consider the chart as reverse to compare it with other pairs as there GBP is the quote currency.<\/span><\/p>\n GBP Pairs<\/p><\/div>\n In these charts, we can see the pairs marked several new highs and lows. It is visible in almost all the GBP pairs in the charts that are flowing downward movement with lower highs and lower lows (EURGBP upward because GBP is the quote currency there). It can mean GBP is getting weaker or all the other currencies are getting stronger for different reasons at the same time. It takes just common sense to understand that GBP as an individual currency is getting weaker according to these charts. Surely, different charts are showing different levels of weakness. The GBPCHF fall was too sharp with no pullback, GBPCAD offered two tiny pullbacks while GBPNZD is ranging and attempting to break a very recent high. Though the overall direction of GBP is downward in these charts, the very recent movement of last 7 days is showing either a pause, a pullback or a reversal of the downward move.<\/p>\n The dashed horizontal lines on the chart show the last high attempts or the last highs the pairs made. We can see the distance from the last high is not similar in the pairs. In GBPUSD and GBPJPY the gap seems too large while in GBPAUD and GBPNZD the gap is very low. From a broad view, until all price stays under the dashed line, we can assume GBP as a currency is weak. If our system or method generates any signal that tells us to go long in any GBPXXX pair for a prolonged time and the profit target is above the dashed lines, w<\/strong>e know that will not be a very good idea.<\/strong> When 3 or more pairs will break the lower- high lower-low sequence and will start the higher-high higher-low sequence, that time we will look for a reversal movement in other pairs and target profits in the upward direction. But there is no clear higher high sequence there and the lower lows are under progression. Now as GBPAUD and GBPNZD are showing a range movement, it means they are quite equal in terms of relative strength with GBP. Let\u2019s see the charts of the AUD pairs.<\/p>\nCurrency and Currency Pair<\/span><\/h3>\n
\nIn this article, we will talk about currencies and currency pairs, so let’s first define what do we mean by them. As we all know, currency pairs such as EURUSD, USDJPY and many others – a currency pair is the quotation of two different currencies, with the value of one currency being quoted against the other. In the pair EURUSD there are two currencies involved the Euro (EUR) and the US Dollar (USD). The price\/quote of EURUSD represents the value of the Euro (EUR) against the US Dollar (USD). This article is about individual currency strength, to understand the movement of the currency pairs involving that particular currency.<\/span><\/p>\nWhy It Is Important?<\/span><\/h3>\n
\nThe movement of a currency pair depends on the relative state of two individual currencies. EURUSD price 1.1500 means that 1 Euro (EUR) is now trading at 1.15 US Dollar (USD). This price goes up and down for many reasons. The price may rise if the EUR gets relatively stronger than USD and can fall if the EUR gets relatively weaker than USD. That can happen in many ways. For a price rise of EURUSD the EUR has to get stronger while the USD strength remains unchanged, or the USD has to get weaker while the EUR strength remains unchanged. For a price fall, the situation will be vice versa.<\/span><\/p>\n
\nIt is not possible to understand the strength and weakness of an individual currency by looking at one of its pair’s price. But it is possible to understand the strength\/weakness standpoint of a currency when we look at it with a holistic view. In the next paragraphs, we will discuss about the methods of understanding currency strength\/weakness.<\/span><\/p>\nStrength & Weakness<\/span><\/h3>\n
\nHow can we measure the strength and weakness of an individual currency? There are several methods of doing this. We should choose a method according to our objective because some methods are very complex and suggest the use of expensive software and services. Our objective here is simple – to add an extra edge with our existing trading systems. We will go the easy way for this analysis, though it may not be mathematically accurate but will give us the required understanding. This will be a visual process.<\/span><\/p>\n
\nWe always observe price moves with higher highs and higher lows in the upward direction and lower highs and lower lows in the downward direction. Of course, sometimes the price makes a range while no new high or low is registered for a long time. In this analysis, we will look for highs and lows of different pairs of currencies and will try to understand the synchronization of the movements.
\nLet’s take the Pound Starling (GBP) as an example of our analysis. It is a major currency pair and it is a heavily traded pair. It has minor and cross pairs will all the major currencies. Most brokers offer at least 11 pairs of currency pairs involving GBP.<\/span><\/p>\n<\/p>\n
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