Currency Strength

The Currency Strength indicator is a valuable tool for traders that displays the historical relative strength of five user-selected currencies over a chosen period. It offers a unique insight into currency dynamics and provides an option to represent relative strength via a scatter plot, enriching traders' perspectives on currency interactions.

Key Features of the Currency Strength Indicator

• Display Options: Choose between the trailing relative strength of currencies or a scatter plot to better visualize currency dynamics. This flexibility enhances adaptability to different trading strategies.
• Adjustable Timeframe: Define the timeframe period for calculating currency relative strength, which influences the precision and relevance of analysis.

Meter Functionality

• Strength Meter Visibility: Enable or disable the currency strength meter for focused analysis.
• Resolution Settings: Adjust the currency strength meter's resolution. Higher resolutions offer more detailed insights, allowing traders to spot minute strength variations.
• Customizable Display: Set the location and size of the currency strength meter on the indicator pane, optimizing for space and convenience.

Relative Strength Scatter Graph

• Enhanced Resolution: Modify the scatter plot's horizontal and vertical width (in bars) for finer positioning and analysis on the X-axis.

How to Trade with the Currency Strength Indicator?

Assessing a currency's relative strength equips traders to evaluate its performance relative to a basket of other currencies. In this context, 'strength' serves as a performance indicator, with 'stronger' currencies showing higher performance over a specified timeframe.

The Currency Strength Indicator empowers traders to scrutinize currency strength across a user-determined period. Results reset at period-end, promoting ongoing accumulation and analysis.

This chart exemplifies the hourly relative strength of various currencies on the 1-minute timeframe, offering immediate insights into currency fluctuations.

Understanding the Scatter Graph

The scatter graph facilitates a deeper understanding of currency strength by comparing it to past values. This dual approach allows traders to determine not only currency strength but also its momentum—whether it is increasing or decreasing compared to the previous period.

The graph is segmented into four sections for quicker interpretation:

• Strong (Green): Indicates positive relative strength (bullish), outperforming the previous period.
• Improving (Yellow): Signifies negative relative strength (bearish), yet higher than previous period values.
• Weakening (Aqua): Shows positive relative strength (bullish), but lower than previous period values.
• Weak (Red): Denotes negative relative strength (bearish), falling below prior values.

Technical Insight

There are numerous methodologies for computing a currency's relative strength. The indicator emphasizes the strength meter and scatter graph, though the calculation process is fundamental.

Given two currencies, B (base) and Q (quote), the indicator evaluates their exchange rate, BQ(t), over time t. A rising value of BQ(t) manifests B strengthening against Q.

The individual relative strength over time, IRS(t), is calculated as:

IRS(t) = [close(t) - open(t)] / open(t) * 100

This normalization of the close-to-open difference allows for a comparable scale among various currencies.

For each currency, n operations perform the above calculation across O(n) currencies. The results form the composite relative strength (CRS) for each currency:

CRS[Currency A](t) = IRS[Currency A, Currency B](t) + IRS[Currency A, Currency C](t) + ... + IRS[Currency A, Currency N](t)

The sum of CRS(t) accumulates over the user-selected period, enabling comprehensive analysis.

FAQ

How do I access the Currency Strength Indicator? You can get access on the LuxAlgo Library for charting platforms like TradingView, MetaTrader (MT4/MT5), and NinjaTrader for free.

What does it mean for a currency to show strength? In this context, 'strength' is a performance metric, indicating that a currency is showing better performance over the given timeframe.

Can I customize the appearance of the indicator? Yes, users can adjust display settings, resolution, location, and size to suit their personal trading setups.