Normalisation formula (min-max normalization): Normalise the values of these indicators using a min-max normalization or other normalization methods, so they have comparable scales. This flexibility allows traders to develop a well-rounded trading approach, combining the strengths of multiple tools and techniques.Ĭhoose a set of relevant economic indicators for each currency, such as GDP growth rate, inflation rate, unemployment rate, trade balance, and interest rates. Versatility: CSMs can be used alongside other trading tools and strategies, such as technical analysis or fundamental analysis. CSMs streamline this process, allowing traders to quickly assess the strength of different currencies and make better-informed decisions. Time-saving: Analyzing multiple currencies and economic indicators can be a time-consuming process. By focusing on stronger currencies, traders can increase the likelihood of successful trades. This can help to optimise returns and minimize risk.Įnhanced risk management: CSMs can help traders identify high-risk currency pairs and avoid trading them, thereby reducing potential losses. Improved decision-making: By highlighting the strength or weakness of individual currencies, CSMs enable traders to make more informed decisions about which currency pairs to trade. This simplification makes it easier for traders to analyse market conditions and identify trends. It doesn't calculate a price like an index does, it gauges the strength on a numerical scale.Simplified analysis: CSMs consolidate data from multiple sources, providing traders with a clear and concise overview of currency performance. Our meter is based on more pairs, and takes the average gain or loss over a couple of timeframes to give an overall strength. For instance, at the time of writing this the US Dollar index is weighted as follows:Įuro 57.6%,Yen 13.6%, British Pound 11.9%, Canadian Dollar 9.1%, Swedish Krona 4.2%, Swiss Franc 3.6%. Instruments such as the US Dollar Index are weighted indexes which compare the Dollar's value relative to a basket of other currencies. Sure, let me show you a couple taken right now. It's Still Not Clear, Can You Show Me A Real Example? Any changes will appear if you refresh the page. It checks our real time forex data every minute and determines the current strength. You might want to stay away from trading those pairs. Conversely, if two currencies are weak, strong or average strength, there is often a range or sideways movement happening. Such deviation between pairs usually indicates momentum. For instance, if a certain currency is very strong, and another suddenly turns weaker, you may find a trading opportunity. It is useful as a quick guide to which currencies you might want to trade, and which might be worth staying away from. It then bundles together each the associated pairs to an individual currency (eg, EUR/USD, GBP/USD, USD/JPY, EUR/GBP, AUD/USD etc) and finds the current strength. The meter takes readings from every forex pair over the last 24 hours, and applies calculations to each. How Does The Currency Strength Meter Work?
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