indicator to determine how strong (or intensity) a currency is relative to its counterpart. To solve this problem, we have designed a free currency strength table. In this article, we will explain this indicator.
The Quantum currency strength indicator mt4 has been designed to show you easily and quickly when a currency is moving strongly in one direction or another, either to an oversold state, or to an overbought state. Currencies and currency pairs move constantly from one to the other in all timeframes.
currency strength indicator mt4 The overbought and oversold regions on the indicator are defined by the dotted lines at 20 and 80 and once these regions are approached then this is a signal for further analysis on the chart. Using the indicator in multiple timeframes is an excellent way to see whether a currency is rising or falling across several timeframes, adding a further dimension to your analysis, and allowing you to quantify the risk on any trade in a more detailed way.
What is the Currency Strength Indicator?
The currency strength indicator shows the performance of one currency relative to a basket of other currencies. It calculates strength by taking the daily price change for each currency and normalizing the values to generate a score. Strong currencies have rising scores, while weak ones have declining scores.
Traders use the currency strength indicator to gauge potential trades based on the strength or weakness of particular currencies. For example, they may look to buy or sell a currency pair when it exhibits strength or weakness relative to the basket of currencies.
Overview of Using Currency Strength Indicators in MT4
MT4 provides a few variations of the currency strength indicator. The most common one displays a line graph for each currency, with values normalized between 0 and 100. Many traders add it to a separate window below their price chart.
The relative movements between the lines highlight which currencies are strong or weak. Traders then look for trading opportunities aligned with the prevailing strength/weakness. For example, buying a currency when its line is rising while selling one that is falling.
Using currency strength effectively does require combining it with price action analysis and being aware of technical nuances. Let’s discuss the key components and applications of the MT4 currency strength indicator.
Components of the Currency Strength Indicator
There are a few settings and options that control how the currency strength indicator calculates and displays values:
Relative Strength Calculations
The indicator uses price percentage changes over a defined “lookback” period to determine the relative strength or weakness of each currency. The percent change can be based on the close, open, high or low of the period.
The indicator needs to normalize the strength values to plot them on a consistent scale. There are a few normalization options:
- Percentage method – Sets the highest strength currency to 100 and scales others proportionally
- Standard deviation method – Mean value set as 50 and values distributed within a set standard deviation range
- Min/max method – Minimum and maximum values set to 0 and 100 respectively
The indicator can be set to reference different timeframes when measuring the price changes. Common settings are daily, 4 hour, 1 hour, 30 mins and 15 mins. Shorter timeframes are more sensitive but prone to more noise.
The indicator values can be displayed as a line graph, histogram or point and figure chart. The color schemes can also be customized.
How to use currency strength indicator mt4?
Interpreting a Currency Strength Lines indicator for MetaTrader is not difficult. This Currency Strength meter shows the strength of a currency with a line, and there are some simple rules to read it.
There are several ways to calculate the strength, however, the main rules are:
- A line going upwards means that the currency is gaining strength.
- A line pointing downwards means that the currency is becoming weak.
- Flat lines, or almost flat, represent currencies that are maintaining their current strength.
- A line above another one means that one currency is stronger than the other one.
- A line above zero is likely to have a bullish trend against currencies below zero and vice versa.
How to Trade Currency Strength Lines?
Considering the basic rules explained above, ideally you always want to trade a strong currency (or a strengthening one) against a weak currency (or a weakening one).
The Currency Strength Lines indicator is versatile and, depending on your trading style, you can use it for both long-term trading and scalping.
It is best to use Currency Strength Lines with some confirmation signals when trading.
Generally, you might want to trade:
- Diverging lines, where one currency is gaining strength and the other one is losing strength.
- Currencies on opposite sides — one with its line significantly above zero and one — significantly below.
- BUY the STRONG and SELL the WEAK.
These are the points where the currency may reverse and change its trend. The overbought and oversold areas on the indicator are defined by the dashed lines at 20 and 80, once these areas are approached this is a signal for further analysis on the chart. Using the indicator over multiple time frames is a great way to see if a currency is moving up or down over multiple time frames, adding more dimensions to your analysis.
As you can see in the examples, knowing the strength of individual currencies can be very useful. In particular, the advantages of the Currency Strength Lines indicator for MetaTrader are:
- It shows the strength of a currency across the board, confirming or denying the price trend in a pair.
- Allows you to spot which currencies are strong and which are weak, so you can choose what pair to trade.
- Helps you understand if a trend is still strong or is exhausting.
- Helps you spot possible countertrends.
Long story short, the indicator can be a helpful instrument for your trading, and if you employ technical analysis in your trading, you want it in your tool case.
Tips for Using the Currency Strength Indicator Effectively
Here are some tips to use the currency strength indicator skillfully:
Choose Appropriate Calculation and Display Settings
Take time to experiment with the various calculation and chart style options to find the optimal setup. Consider both visual clarity and sensitivity to price changes.
Use Multiple Timeframes
Monitor strength on short, medium and long-term timeframes. This provides perspective on both current real-time conditions and bigger picture trends.
Combine with Price Action Analysis
Look for strength readings to align with patterns or indicators derived from actual price bars/candles. Divergences can be particularly insightful.
Focus on Divergences
Some of the best trades come from divergences between strength and price. For example, long when strength rises and price falls.
Be Aware of News Events
Strength calculations can swing rapidly around news events. Understand the dynamics of pre-news positioning and fast post-news unwinding.
Example Trading Strategies
Some potential trading strategies utilizing the currency strength indicator include:
Fading Extreme Highs/Lows in Strength
Look for currencies hitting extremes in overbought or oversold strength for mean reversion trades back to the average.
Trading Divergences Between Strength and Price
Buy a currency showing rising strength that is still falling in price, or short weakness building while price rises.
Monitor for currencies making new strength highs or lows for potential continuation breakouts.
The currency strength indicator provides beneficial supplementary data for forex traders using the MT4 platform. It delivers a unique perspective on which currencies are exhibiting relative strength or weakness over defined calculation periods.
However, currency strength works best when combined with price action analysis for confirmation rather than solely relying on strength readings to trigger trades mechanically. Some experimentation is required to configure the indicator in a manner optimized to an individual trader’s style and preferences.
Skillful use of the MT4 currency strength indicator can definitely improve trading performance, but requires practice using strength data in an informed manner alongside other confluence factors. It remains one of the more valuable tools available for forex trading on the popular MT4 platform.
What are the best settings for the currency strength indicator in MT4?
There are a few optimal settings for the MT4 currency strength indicator: 1) Use percentage normalization, 2) Set timeframe to H4 or daily, 3) Use close price input, 4) Display as line chart. Of course traders can experiment to find settings matching their preferences.
How do you trade divergences with the currency strength indicator?
Look for situations where currency strength is rising while price is falling, or strength falling while price rises. These divergences suggest potential mean reversion trades. Enter long trades on rising strength with falling price, and short trades on falling strength with rising price.
Can the currency strength indicator be used for automated trading strategies?
Yes, the MT4 currency strength indicator can be incorporated into Expert Advisors and other automated trading systems. Values can be accessed via MQL programming and trades entered based on indicator conditions and logic. This allows hands-free algorithmic trading based on currency strength.
What is the difference between the MT4 currency strength indicator and currency strength meter?
The MT4 currency strength indicator plots values for individual currencies on a normalized scale. The currency strength meter instead shows aggregated strength calculations for currency pairs, typically displayed as an oscillating line ranging between -100 and +100. So the meter tracks pair strength, while the indicator tracks individual currency strength.
How often should you adjust the timeframe settings on the currency strength indicator?
There are no definitive rules on adjusting the indicator’s timeframe settings. Many traders will optimize settings initially then leave at a static timeframe for consistency in signals. However, occasionally altering the timeframe provides a fresh perspective to catch different opportunities. Experiment to find an adjustment approach that fits your trading style.
Download for MT4
This Currency Strength Lines indicator for MT4 tries to show you the absolute strength of the 8 major currencies. The indicator uses an algorithm based on the standard MetaTrader RSI indicator to calculate the strength of a currency. The Currency Strength is established by scanning the RSI of all the currency pairs, finding then a value that is independent.
The indicator also includes alert features. You can download it for free: