Currency Strength Meter: Find Strength Behind The Winning Trades

Last Updated on October 26, 2020 by Alphaex Capital

Reading currency pairs (USD/JPY, EUR/USD, GBP/USD etc.) is important.

What is also important is being able to read them and understand the strength of a currency in isolation.

You want to know which currency pair is strengthening (and weakening) to help find trading opportunities.

This is achieved by reading a currency strength meter.

Where the output is a single currency and dictates whether it is strengthening or weakening against its peers.

This Forex measure indicates which currencies are strong and which at any given moment are weak, representing the shift inside a matrix.

What you will learn today is how to use forex pairs that correlate and how to use the currency strength meter to your advantage.

How Does The Currency Strength Meter Work?

A currency strength meter is essentially a visual guide indicating which currencies are currently solid, and which currencies are poor.

Indicators of currency strength use the exchange rates of various currency pairs to create a composite, equivalent value of and currency;

The currency strength meter would measure the power of all pairs representing the USD to measure the power of the USD and then bring those measurements together to assess the average result for the US dollar.

The meter takes readings over the last 24 hours from each forex pair and applies estimates to each.

It then bundles each of the related pairs together to an individual currency (e.g. EUR / USD, GBP / USD, USD / JPY, EUR / GBP, AUD / USD etc.) and determines the overall strength.

How Does The Currency Strength Meter Help Me Trade Better?

It is helpful as a quick guide to which forex pairs you may wish to trade, and which may be worth staying away from.

For example, if a certain currency is very strong, and another one suddenly becomes weaker, you may find an opportunity to trade.

Usually, such a deviation between pairs indicates momentum.

In contrast, if two currencies are weak, strong, or average, a range or sideways movement often occurs.

Advantages of the Currency Strength Meter

The use of a currency correlation matrix as a Forex indicator has a number of benefits, including its flexibility, its utility as a short-term tracker, the ability to identify high-risk trades, and the fact that it is available for free.

Usually, experienced traders use FX strength meters as short-term markers.

They are useful as a fast guide to which currencies are increasing, yet are more of a snapshot of current strength than something else, rendering them useful for immediate trade decisions (or for checking indications given by other indicators).

How easy it is to grasp is a big benefit of a Forex strength meter.

This is particularly attractive to novice traders-you don’t need to be an expert on the Forex market, so you can only look at a basic graphical representation and see the currencies are doing well or doing poorly.

Assets with strong similarities are going in the same direction.

For this reason, it is not prudent to open several positions of strongly clustered pairs, since you are basically doing the same business more than once.

This places you in a very weak position when the economy is turning against you. In Forex, if a trader goes on AUDCHF, AUDJPY, and EURJPY for a long time, the trader faces double exposure if they are heavily linked.

Deepening, the above-mentioned positions offer double exposure to AUD and JPY, which can be dangerous to trade if the change is in the opposite direction from the objectives of the seller.

For a Forex correlation matrix, you can see at a glance which currencies are correlated, which ensures that you can stop performing these transactions in the first place and thus stop double exposure to a poor currency.

The association between various currency pairs can also indicate the degree of risk of a trading policy.

For eg, if EUR/USD and GBP/USD are long and both pairs are positively linked, the potential double risk from the same position is implied if one currency is high.

What may also happen is that one pair suggests a heavy acceleration, while the other is only going, which warns traders to stop joining trades of similar pairs in the opposite direction.

For example, if EUR/USD is at a downtrend and GBP/USD varies, a trader should avoid investing a long period on GBP/USD, which carries a higher downside risk due to potential USD power.

Although there are similarities, it is necessary to note that they will alter.

Global economic conditions are complex – they can and will change on a regular basis.

The relationships between two currency pairs can differ over time and, as a result, a short-term correlation can refute the predicted long-term correlation.

Looking at long-term trends gives a better view of the relationship between two currency pairs – this appears to be a more reliable and definitive data point.

That’s why it’s important to frequently measure forex pairs that correlate.

The Best Currency Strength Meter Tools:

MT4 Use Admiral Markets Supreme Edition:
Here you get access to Admiral Markets Forex Currency Strength Matrix which gives you real-time and instantaneous updates when currency is strengthening or weakening.

You can have this tool running on your platform and monitor it with your positions easily.

Currency Strength Meter Indicator


Finviz Currency Strength Meter
This is a good choice if you want to view longer time-period strength and weaknesses

Finviz Currency Strength Meter Online


BluFX Free Online Currency Strength Charts

This is a free online version.

You simply go to the URL and it will give you an idea of which currencies are strong or weak at a particular timeframe.

Currency Strength Meter Online


Using any of the above will certainly give you a bigger picture of where the market is gaining momentum.

How to Trade Forex Using the Currency Strength Meter

As a rule – you never want to trade two forex pairs that are both strong at the same time.

For example, if EUR was strengthening and so was USD – you wouldn’t want to trade those crosses at the minute as you would have mixed signals.
Essentially, you want to be trading a pair when one is weakening and the other is strengthening.

Let’s use EUR/USD as an example:

If The Euro is weakening and the US Dollar is strengthening, this would mean that it would be a good time to SHORT the EUR/USD.

On the flip side, if the Euro was strengthening and the US Dollar was weakening, this would be a great time to LONG EUR/USD.

When you pair the Currency Strength Meter with price action trading, it becomes a very strong forex tool to earn high returns and win the trading share.


So there we have it.

You should be up to speed with the uses of forex pair correlation and the currency strength meter indicator.

This is a good tool to use as a sign off whether you should enter the markets or not, but it shouldn’t really matter if you are on lower timeframes.

If you are a longer-term trader, then you can expect to use these tools to improve entries and avoid going against the market strength.

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