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How to use Currency Strength Meter – full guide & FAQ

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Although I am not a fan of technical indicators, I want to devote this article to an interesting indicator I have recently come across. It is the Currency Strength Meter, an indicator that measures the currency strength and could provide information on which currency is rising and which is falling.

The article covers the following subjects:

What is a Currency Strength Meter?

The Currency Strength Meter is an oscillator-like technical indicator located under the price chart. It measures and graphically shows the strength or weakness of currencies in the Forex market.

Unlike popular oscillators, such as the RSI, the CSM analyses several currency pairs simultaneously and displays the readings of each currency pair.

CSM works in a similar way as the MACD, which calculates the slope of the moving averages but for a single currency pair. 

Since the indicator shows the strength of one instrument relative to others, its applicability is limited to currency pairs. For example, it cannot be used for CFDs because they are not quoted relative to each other.

There are also Expert Advisors based on the analysis of the strength of currencies, thanks to the fans of programming and automatic trading.

How does the Forex Currency Strength Meter Work?

Curved lines represent the movements of currency pairs:

  • The higher the line, the stronger the currency growth;

  • The lower the line, the stronger the currency fall.

EURJPY, M15 timeframe

The EUR line (blue) is high, which means the euro is strong. The JPY line (yellow) is low, which means the yen is weak. The EURJPY is rising.

According to the indicator author’s idea, if the curved line is in the channel between two horizontal lines, the price impulse is not strong enough to trade.

Note that a change in the direction of the indicator line does not primarily mean a change in the trend; it means a change in the current trend strength:

  • if the line is above the channel but directed downward, it means that the trend is still up, but the growth has slowed down;

  • if the line is below the channel but is directed upwards, the trend is still down, but the decline has slowed down.

USDCHF, timeframe H4

The USD line (red) is low and directed down. The CHF line (blue) has turned down, but it is still high, meaning that the CHF is strong. The price chart confirms this, and the USDCHF continues falling.

Lines cross at the channel border

Crossing near the border of the channel indicates that one currency begins trending, and another one is moving without a clear direction.

Rules for crossing at the upper border of the channel:

  • If the base currency breaks out the channel upside, and the quoted currency goes into the channel, it signals an uptrend for the currency pair.

  • If the base currency is going into the channel, and the quoted currency breaks out the channel upside, it signals a downtrend.

     

Let me explain the rules on the example of GBPCHF:

GBPCHF, timeframe H4. The crossing is near the channel border.

At the upper border, the GBP (the base currency goes into the channel from top to bottom) and CHF (the quoted currency breaks the channel from bottom to top) cross. This indicates the strengthening of the quoted currency, CHF, and the sideways trend for the base currency, GBP. Taken together, this indicates a likely GBPCHF downtrend, which starts after a while.

Rules for crossing at the lower border of the channel:

  • If the base currency breaks the channel downside, and the quoted currency goes up into the channel, it signals a soon downtrend;

  • If the base currency goes into the channel, and the quoted currency breaks out the channel downside, it signals a soon uptrend.

The same GBPCHF chart. The crossing at the channel border.

The base currency GBP goes into the channel from bottom to top, while the quoted currency CHF breaks the channel from top to bottom, it signals a soon uptrend. After the lines cross at the lower border of the indicator channel, the GBPCHF currency pair moves upward.

Crossing at the channel border is considered a signal of “medium-strength”. The currency that goes into a sideways trend does not affect the currency pair’s trend strength in any way. And therefore, the trend strength of the currency pair depends solely on the movement of one currency, the one whose indicator has broken the channel.

Lines cross outside the channel borders

The crossing of two indicator lines outside the channel borders means that one currency is strengthening against the other.

General rules of crossing above the upper channel border:

  • If the base currency line breaks through the quoted currency line downside, it signals a downtrend;

  • If the base currency line breaks through the quoted currency line upside, it signals an uptrend.

GBPUSD, timeframe H1. Indicator lines cross outside the channel borders.

GBP (blue line) breaks through the USD (red line) upward above the upper channel border. This indicates an increase in the growth rate of the British pound relative to the growth rate of the US dollar. This signals the GBPUSD uptrend is to resume.

General rules of crossing below the lower channel border:

  • If the base currency line breaks through quoted currency line upside, it signals an uptrend;

  • If the base currency line breaks through the quoted currency line downside, it signals a downtrend.

GBPUSD chart, timeframe M15. Crossing the lines outside the channel border.

The GBP line crosses the USD line upside, being below the lower channel border. It signals the GBP is strengthening, and the USD continues weakening. Therefore, the GBPUSD is likely to continue growing.

In general, there is no difference in which side of the channel the currency indicators crossed. My subjective observation is that the farther from the channel border the lines cross, the stronger and longer the subsequent trend.

EURCAD price chart, timeframe H1. Example of lines crossing outside the indicator channel

In the EURCAD price chart, I marked three points where the lines of the live Currency Strength Meter cross outside the channel. At the first point, the lines cross close to the channel’s upper border, and the EURCAD rose a little. At the second and third points, the lines cross far from the upper channel border, and the price was rising longer than at the first point. 

 Another example:

USDJPY chart, timeframe H1. Example of lines crossing outside the channel border

I marked all crossings outside the channel in the USDJPY chart. In the first case, the JPY line meets the USD line near the upper border. The price went down a little. Next, the indicator sends an opposite signal, and the price returns almost to the same level where it started falling.

In the second case, the lines meet far from the channel border. The following downtrend continues longer than in the first case. 

Lines cross within the channel

If the lines are inside the channel, it means that neither currency has a clear up- or downtrend. Note that it is within the channel that the indicator lines intersect most often in a short period.

I marked four signals in the GBPJPY daily chart.

GBPJPY chart, timeframe D1. Example of the crossing inside the channel. 

In the first and the third cases, a trader would make a profit from a very short upward movement. In the fourth case, the sell would be entered in the sideways trend, and the sixth bar would be upward. Only one signal out of four, signal №2, would provide a profitable trade.

If guided by such signals, the trader will have to enter and exit a lot of multidirectional trades with little profit. Therefore, I would not advise entering trades based on the CSM lines crossing within the channel.

Mirror crossing

This is the strongest signal of the Currency Strength Meter. One currency line breaks out the channel upside, which means it is strengthening. The second currency breaks out the channel downside, which means its weakening. So, the pair composed of these currencies should be trading in a strong and long-term term.

If the base currency line goes up from the channel and the quoted currency indicator goes down beyond the channel, the currency pair could start rising.

GBPJPY price chart, timeframe H1. Mirror crossing signal.

The vertical red line marks the mirror crossing of the GBP and JPY lines. The GBP goes out from the channel upside, and the JPY line goes down beyond the channel. This is the signal to buy the GBPJPY.

The vertical yellow line marks a potential entry point, the intersection of the GBP and JPY lines suggesting the equality of powers. Even at this point, there would be a good trade in terms of risk/return ratio.

If the base currency line goes beyond the channel down, and the quoted currency breaks out the channel upside, the currency pair is to be falling.

The GBPJPY price chart, timeframe H1. Mirror crossing signal.

The first and the second signals indicate an increased probability of a downtrend: the JPY line breaks out the upper channel border upside, and the GBP line breaks through the lower channel border. In both cases, the currency pair dropped in price. The third signal wouldn’t yield a profit.

The Advantages of Using Currency Strength Meter

The indicator could be applied in the following way, in my opinion:

1. The first question of a beginner trader is whether it is a trend or flat. The indicator gives necessary information.

If you stick to a trend-following strategy, try entering a trade based on the signals in short-term timeframes only when Currency Strength Meter indicates that at least one currency from the pair is strengthening in a longer timeframe. Ideally, one currency should be strengthening, and another one should be weakening, according to the indicator reading. 

If both currencies’ lines are inside the horizontal channel or moving in the same direction, it is not relevant to enter trades in the trend.

GBPUSD price chart. The currencies’ lines are inside the horizontal channel.

In the D1 timeframe of the EURUSD price chart, I marked the period unfavorable to enter trades in the trend. Both currencies’ lines are inside the horizontal channel.

Next, the USD line goes outside the channel down. At this moment, one could switch to the shorter timeframe and look for a signal to enter a trade in the trend.

GBPUSD price chart. The currencies’ strength changes equally.

I marked 2 cases when both currencies first strengthened at the same time and then weakened simultaneously. In both cases, the price chart is trading flat. Therefore, one should not enter trades in such periods.

2. When the price is rising/falling by a larger number of points for a particular time. For example, in an uptrend, the price rose by 50 pips in the previous hour and by 100 pips during the current hour. Therefore, the increase in the trend strength (both an uptrend and a downtrend) means higher volatility.

Therefore, the CSM indicator will help you determine the periods of high and low volatility:

  • When the lines go apart, the volatility increases;

  • When the lines converge, the volatility declines;

  • If the lines are inside the horizontal channel, the volatility is likely to be low.

AUDUSD price chart. Use of CSM to analyze volatility

I attached the Bollinger Bands indicator to the AUD USD chart, showing the increase and decrease in volatility.

The divergence in the CSM lines coincides with the widening of the Bollinger Bands, which means higher volatility. The divergence in the Currency Strength Meter lines coincides with the narrowing of the Bollinger Bands, signaling lower volatility.

I marked with vertical red lines the periods during which the currency lines on the indicator were inside the horizontal channel. Bollinger bands are narrowed in both cases, which indicates low volatility.

If your trading strategy involves entering trades only during periods of high/low volatility, the indicator can be used to filter signals. You should trade only those signals in shorter timeframes that appear during the period of the required (high or low) volatility in the higher timeframe. 

For example, the features of high volatility:

  • One currency line is outside the channel, and another currency line is inside the channel;

  • Both currencies’ lines are inside the channel.

The features of low volatility:

  • Both currencies’ lines are inside the channel;

  • Both currencies’ lines are above the channel and moving in the same direction;

  • Both currencies’ lines are below the channel and moving in the same direction.

3. The ‎Currency strength meter will suit traders who prefer breakout strategies. The trade is entered in a flat just before the expected momentum up or down.

If you expect the price to break out the trading range soon, you can pay attention to the CSM reading of one of the currencies of the traded pair:

  • When the price is approaching the lower border of the flat channel and the CSM of the quoted currency is above the upper channel border and rising, and the base currency line is inside the channel or below it, the market is likely to break out the flat downside.

  • When the price is approaching the upper border of the flat channel and the CSM of the base currency is above the upper channel border and rising, and the quoted currency line is inside the channel or below it, the market is likely to break out the flat downside.

An example of a breakout in the AUDUSD chart:

AUDUSD price chart. CSM indicator in entering the trade on the flat breakout.

I market the sideways channel in the chart with a turquoise box. When the price is approaching the lower flat border, the indicator signals the USD strengthening while the AUD line is inside the channel. I marked this signal with the red vertical line. This signal means an increased chance of a downward movement, and the trend turns down. 

Advantages of the Currency Strength Meter:

  1. If you make up a pair from the strongest currency and the weakest one, you will have a trading instrument with a potentially strong trending movement. It is ideal for trend-following strategies.

  2. It can be adjusted to the trading timeframe, and all currency pairs are analyzed in the chosen timeframe;

  3. You don’t have to monitor the situation for other currency pairs, the Currency Strength Meter provides the information on all major currencies in the same chart. So, you can choose the currency pair suitable for your trading strategy;

  4. It helps to identify the moment when the trend starts exhausting. It will suit traders who prefer counter-trend strategies.

Disadvantages of Using Currency Strength Meters

1. Double lag. The currency strength meter basically analyzes the slope of moving averages. And moving averages are a derivative of the price, i.e., delayed information. Thus, the indicator readings give out a double delay compared to the price chart. This means that the signals from the indicator will appear only after a long price movement. Therefore, it is necessary to correctly analyze longer timeframes. For example, when trading in the hourly timeframe, it is better to analyze not H4 but D1 as the longer one. Such signals are relevant only if the trend in the longer timeframe is the same as the trend you are going to trade.

If there is a flat or a counter-trend in the longer timeframe, you will enter the trades according to such signals at the end of the price movement and will hardly make a profit. 

2. The indicator should not be used alone, it is not a self-dependent trading strategy. The entry signals are clear, but you will need more tools to determine the exit points. If you expect any opposite signal based only on the CSM, you will face a high risk of losses due to the lag.

3. Too much information for analysis. This is a psychological factor. At first, a trader is not confident enough and therefore tries to play it safe. Beginners think that the more information they can analyze, the less likely there will be a losing trade. In practice, it is impossible to avoid losing trades. What I mean is that the abundance of information from the indicator will mentally exhaust the trader because they will try to analyze all of it. To solve this problem, one should leave one currency pair in the indicator, for example, the most traded Forex pair – EURUSD.

Good and bad currency strength meters

Forex currency strength meters are based on the same principle, a comparison of currency pairs with each other and a subsequent comparison of currencies with each other. The differences can:

A bad currencies strength indicator:

  • Does not have a clear description. If you do not understand how the indicator works after the first reading of the description, choose another tool. In the beginning, trading is always stressful, and the degree of stress depends on the experience. If you add the question “did I understand everything correctly?” this will lead to slow and/or emotional trade entries. As you see, such trading will lead to losses and emotional burnout.

  • Has too many parameters. I mean too long logical chains before making a trading decision. For example, ‎if the line is directed there, the arrow shows this, the indicator’s colour is this or that, and the number is from 0 to 999, then the trend is up, and you should buy. There should be no more than two parameters; otherwise, the brain’s RAM will take all the resources. As a result, the trades will be entered too late or based on emotions.

Other variants of the Currency Strength Meter will do. Even if you use a familiar indicator, you should have a clear set of rules to enter trades. So that when there is a signal, you will enter a trade without thinking for too long. 

My favourite currency strength indicators:

1. The Currency Strength Slope is a classical currency strength indicator.

2. The CurrencyPowerMeter is a simple and user-friendly tool. It displays a two-way analysis of currencies; in the current timeframe and in the longer one. It has many modifications.

CurrencyPowerMeter Indicator.

3. ForexCurrencyIndex is a matrix indicator. It shows the behaviour of currencies in all available timeframes. It was designed as a comprehensive analytical tool. Arrows and numbers are ample; histogram and colours (green and red) are enough for analysis. A disadvantage is the confidentiality of the settings.

ForexCurrencyIndex

Mistakes to avoid when using Currency Strength Meter

Traders often look for a tool to which they can shift the responsibility for their trading decisions. For example, the moving averages have crossed, and you can enter a trade. It turns out that the indicator made the decision, not the trader.

In the context of the currency strength indicator, the first and main mistake is to use it as in the example above: “‎if the line is there, you need to buy/sell.” The indicator only displays some information that should be analyzed first to avoid hasty conclusions and actions. For example, an increase in momentum does not always mean a further continuation of the trend. And a decrease in momentum does not always precede a quick reversal.

The second mistake is looking for signals where there are none. A trader who WANTS to find an entry signal will definitely find it even if there are no signals‎. Indicator signals allow you to unambiguously determine the presence/absence of good entry conditions in a particular strategy. For breakout strategies, a period of strong momentum is suitable, and a period of weakening is not suitable. For counter-trend traders, the opposite is true. It is recommended to enter only in favorable for your trading strategy periods.

Currency Strength Trading Strategy

I like the FX Nuke trading strategy; it satisfies all significant parameters for me. It is simple, adapts to any trading style, and, finally, looks nice. Two indicators are used for trading and supplementing each other, and they should confirm each other’s signals.

FXNUKE System templates

FXNUKE System has three templates:

  • Scalptrading — aggressive trading; it provides early, high-risk entry signals and the largest potential profits;

  • Daytrading – the universal mode, providing the most balanced signals and medium profits;

  • Swingtrading – Provides the most secure signals with less profit potential at the same time.

 You can choose any of them in the Templates menu.

If you want a higher Take Profit/Stop Loss ratio, you will have to face higher risks. If you want to have more winning trades, you will have to lower the TP/SL ratio.

The templates’ names do not indicate the recommended trading timeframes: Swingtrading can be used in the M5 timeframe if you like scalping and non-aggressive entry signals associated with low risks. You may also use it not only for short-term timeframes. Swingtrading will work in the D1 timeframe if you want more frequent entry signals, as well as Daytrading. 

First, you need to determine which currencies are the strongest and the weakest. Next, you make up currency pairs for trading by combining one strong and one weak currency.

Comparison of currencies strength in the FxNuke strategy.

Major currencies to trade, based on the above chart, are the EUR, NZD, CHF, and JPY:

Currency pairs like EURCAD or CHFJPY, in this case, are not attractive because the strengths of the base and quoted currencies are approximately equal.

So, according to the trading system, EURCHF, EURJPY, NZDCHF, and NZDJPY will be optimal to trade.

In this example, we should expect a buy signal for the above-indicated pairs, as the base currency is strong and the quoted currency is weak in all these cases. If the base currency is weak and the quoted one is strong, we should expect a sell signal.

I recommend choosing the pairs with the tightest spread based on the timeframe you trade.

The developer of the indicator recommends exiting the trade in one of three ways:

  • when the profit exceeds the stop loss by 2 times (2:1 ratio);

  • when the profit is equal to the stop loss value (ratio 1:1);

  • when an opposite signal appears. 

I noticed that the signals by the entry/exit indicator have more weight than the currency strength panel. The latter changes dynamically, so there is no need to panic if the balance of currency strengths has changed after entering a trade.

Example of a EURJPY sell trade in the M1 timeframe. Daytrading template.

EURJPY, sell trade. Daytrading template.

I see that the EUR is weaker than the JPY in the currency strength panel. So, I expect only sell signals, ignoring any signals to buy. Next, based on the entry/exit indicator signal, I enter a sell trade with a stop loss above the most recent price high.

EURJPY trade transfer to breakeven.

After reaching a 1:1 ratio between the take profit and stop loss, I move the trade to breakeven. Since I am trading in Daytrading mode, the trade can be exited with this ratio.

Transfer of take profit for EURJPY trade.

I decided to move the take profit to 2/1 in relation to stop loss.

Exiting EURJPY trade.

Finally, the trade is exited with the take profit.

Use Currency Strength Indicator

There is a mirror crossing signal of AUD and JPY lines in the indicator. This is the common currency strength indicator, I only removed the lines of other currencies.

AUDJPY price chart, M5 timeframe.

Based on this signal, I enter an AUDJPY sell trade and set a stop loss above the previous high.

Transfer of the AUDJPY trade to breakeven.

Once the reward-to-risk ratio is 1:1, I pull the stop loss closer to the entry point.

Trade is exited with take profit.

When the take-profit/stop-loss ratio reaches 2:1, I exit the trade.

Example of another trade entered according to the channel border crossing signal.

AUDNZD trade, timeframe M5.

AUD is getting weaker compared to the NZD. I enter an AUDNZD sell trade. A stop loss is above the nearest price high.

AUDNZD trade: a shift to breakeven.

When the reward-to-risk ratio is 1.5:1, I shift the trade to breakeven.

AUDNZD trade is exited according to the opposite indicator signal.

Next, the price movement doesn’t develop, and I exit the trade based on the opposite indicators signal (crossing outside the channel, with AUD strengthening against the NZD). 

The above trades are just examples of how to trade with the Currency Strength indicator rather than strict rules. You don’t have to move stop loss, or exit trade only in such conditions. You can experiment and use the indicator in a way that fits you. 

Trade with the Currency Strength Heat Map

The Currency heatmap, also referred to as Forex Heat Map, provides a graphical representation of the relative strengths of major currencies relative to others. The heatwave shows how much the quote (the price of a currency pair) has changed compared to the previous period. There are many modifications of the currency heatwave, but the principle is the same, choose the most understandable for you. 

The current value is compared with one of 3 values:

  1. Previous high;

  2. Previous low;

  3. Previous close.

 Example in the D1 timeframe:

 The changes are represented in the following way:

  • Dark green means that the current price is higher than the previous high;

  • Light green means the current price is higher than the previous close but lower than the previous high;

  • Dark red means the current price is lower than the previous low;

  • Light red means the current price is lower than the previous close but higher than the previous low.

Some Forex heat maps also show the % of the price change compared to the previous closing price.

I recommend using the currency heat map only as a filter when choosing currency pairs to trade, but not as an entry signal. The heat map represents the current price’s location relative to the previous period’s price range. The colours, in this case, are not a measure of the trend strength. Bright colours mean the price is outside the previous day’s range, and pale colors indicate that the price is inside the previous day’s range.

My second recommendation is to use the Forex heat map in a timeframe of D1 or longer. For example, trend-following traders who receive intraday signals may like “‎bright green” or “‎bright red”‎ currency pairs in the D1. This will provide an opportunity to “bite off a piece” of the trend from the longer timeframe.

Forex Correlation Matrix (Currency Strength Matrix)

A correlation matrix (or currency matrix) is a table in which instruments are compared according to the degree of similarity in price behavior.

The currency correlation is calculated using mathematical statistics formulas. It measures from -1 to +1 (or -100% to +100%). A positive correlation means that two currency pairs move in tandem, and a negative correlation means that they move in opposite directions. 

With a high correlation closer to +100%, the price charts of the instruments will become more and more similar; make allowances for this when entering trades. If I trade your trading strategy on a correlated instrument, I will get a similar profit. With a correlation of -100%, the price chart of one instrument will repeat the movements of the second instrument but in the opposite direction.

Instruments with too high or too low correlation are not suitable for hedging. 

Despite the visual similarity of the Forex correlation matrix with a heat map, the matrix cannot be used to assess the strength of currencies. The matrix reflects how two currencies relate to one another, but it doesn’t compare the trend strength.

For example, the Forex currency correlation between EURUSD and AUDCAD of 88.4% does not indicate that the EUR is weaker than the AUD, it means similar co-directional price movements in 88 cases out of 100. 

Be careful because search engines could present tables of currency strength at the “currency matrix” request.

How to download Currency strength indicator for MT4

1. If there is a ‎Download‎ button, click it. If the indicator file itself is presented instead of the button, right-click on it and select Save as‎.

2. Choose the installation path. If you download a file automatically, it will be available in your Downloads folder.

3. Find the downloaded file. The indicator files have .mql and/or .ex4 extensions. There can be two files or one of them. Select a file or two files, right-click on one of them, and select Copy.

4. Open the MetaTrader trading terminal. In the top menu, select ‎File, then Open Data Folder.

5. Depending on the version of your MT terminal, open the folder MQL4‎ if you have an MT4 terminal installed or MQL5 if you have MT5. Next, open the ‎Indicators‎ folder.

6. Paste the indicator files copied earlier into the ‎Indicators‎ folder. To do this, right-click anywhere in the folder and select Paste.‎

Best Currency Strength Meter

There is no such thing as “the best currency strength indicator” apart from the personality, temperament, and needs of each particular trader. There are too many variables in trading for each of us, such as timeframes, acceptable risk level, the desired number of trades per period, and trading style (trend or counter-trend). Even the trading platforms used are different.

The second criterion is that the indicator should improve your trading results. If your results, following backtest, remain the same or worse when adding an indicator, then such an indicator is not suitable for you. It will take your attention without giving anything positive. Even if other traders praise an accurate currency strength meter, it may suit their natural trading characteristics, but not yours. You can choose the tool that will suit you among the numerous best free currency strength indicators on the Internet.

As for me, I am a counter-trend trader using the Metatrader terminal. My favourite macro currency strength indicator is ‎CurrencyPowerMeter. I enter trades opposite the trend in the short-term timeframe but following the direction of the global trend in the longer timeframe.

It is more comfortable for me to wait for a good entry signal, even if it takes some time. Due to the small number of transactions, I have enough time to analyze the information on a lot of currencies provided by this indicator. Consequently, my attention will not be overloaded, even despite the abundance of information.

I hope the descriptions of my trading approach will also help you analyze your preferences when choosing an accurate currency strength indicator. If none of them improve your trading, don’t be discouraged. Indicators are not a panacea but a tool that is not even essential.

Currency Strength Meter: installation and settings

You can attach the indicator to the price chart in several ways:

1. In the top menu, select ‎Insert‎ → Indicators‎ ‎→ ‎Custom‎. Next, select the desired indicator from the list and click the left mouse button.

Next, there will be the indicator window. If you don’t want to change any parameters, click on the OK button.

2. In the left panel, Navigator, click on the Indicators folder. The custom indicators will be without category.

To use the indicator, you need to drag it onto the chart from the Navigator panel.

Some currency strength indicators may not be loaded the next time you open the trading terminal. If this happens, try one of these options:

  • right-click anywhere on the chart. From the menu that appears, select Update;‎

  • remove the indicator and add it again.

Currency Strength Meter: Summary

My opinion will not be sufficiently objective, as I am prejudiced against any indicators and do not see the need for them.

I like that CSM analyzes the relative strength of each currency by comparing it to the rest. But the calculation algorithm is based on the slope of the moving average. So, the logical chain is as follows: the steeper the slope angle, the stronger the currency. It is not correct since the previous growth does not indicate the current currency’s strength but its strength in the recent past. But all the indicator signals are based on the supposedly “current” judgment and not the “past” strength.

Thus, if the trading strategy suggests entering trades after significant price movements, then the currency strength indicator signals will be helpful.

In addition, the indicator gives an abstract idea of the subsequent price movement. For example, even if there is a signal for the strength of one currency and the weakness of another, it is not clear when the movement of the currency pair can actually begin. This implies difficulties with setting a stop loss. Alternatively, candlestick patterns can be used to determine stop-loss levels.

For example, the currency strength indicator sends a signal → expect a candlestick pattern (pin bar, engulfing, inside bar) → enter a trade and set a stop loss based on candlestick patterns.

The CSM indicator doesn’t also provide clear rules to exit a trade. Since it is based on a moving average, a lagging indicator, exiting on the “opposite signal” will, in most cases, result in a loss. 

To sum up all the above, I would use the Currency Strength Meter indicator for informational purposes only:

  • to analyze how the price behaves with one or another of its signals;

  • to analyze how the indicator behaves during certain types of price movements: a strong impulse, a flat, a long non-volatile trend, etc.

In the context of practical trading, the usefulness of this indicator, in my opinion, is insignificant. Among custom indicators, there are much more straightforward, more understandable, and visual indicators that display the same information with the same advantages and disadvantages.

FAQ on Forex strength meter

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteFinance. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.

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