A Smart Approach To Forex Trading With Currency Strength Analysis


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Analyzing the strength of a currency can be a valuable tool for Forex traders as it can help them predict which direction a currency will move. 

Today, we will be talking about how you can learn about the strength or weakness for a particular currency pair during a certain period or day.

Let’s start with how you can analyze currency strength and how it could help your Forex trade setup.

Determining the Currency Strength or Weakness 

The currency strength or weakness indicator helps determine the relative strength of currencies. It uses the real-time exchange rates for a certain period to measure the aggregate and comparable strength of a particular currency.

In simple terms, the indicator is a tool that can predict how strong, or how weak, a currency is right now or may be in future.

When you trade the Forex, you are trading currency pairs. You’re buying a currency and you’re selling other currency against it.

In order to do this effectively, and to target some potential profits, you need to know which direction a currency pair may move. And that’s where these indicators, oscillators, and chart patterns come in handy. 

Finding Currency Strength On SmartTrader

Now, there are many ways and tools through which you can determine the relative strength of currencies. 

First, let us understand how it works on your SmartTrader platform.

Open up a new currency chart on your SmartTrader trading platform for which you want to know the strength.

Now, to find the strength, all you have to do is add the daily encapsulations on the chart. This will give us boxes on the chart that will indicate the price movement for each day.

Just click on the SmartTools’ and then the Daily Encapsulation buttons and your SmartTrader chart will show you boxes on the selected chart.

Here’s how it should look:

Source: SmartTrader, MTI

All these boxes will indicate the price movement for each day or a certain period for a particular currency. For instance, the above boxes in the chart represent the price movement for the U.S. Dollar (USD) during various days.

And the last box shows us that the dollar is bullish and moving up in the current day’s session.

Comparing Strength of Various Currencies

In addition to comparing the strength of different currencies, traders can also compare the strength of a particular currency to other instruments, such as stocks or commodities.

To do this, head on to the ‘Compare’ button and choose the instrument you want to compare with the dollar. And that will show you how that instrument moved in comparison to the dollar during the selected days.

Source: SmartTrader, MTI

The chart shows how the JPYX has moved against the USD during the various days which are represented in boxes. 

The last box tells us that while the dollar has been consolidating and rising today, the JPYX has been falling. And that means the JPYX may have less strength as compared to the dollar in today’s trade.

You can add further currencies or instruments on this chart to compare them with the other already plotted currencies.

So, that was one of the many simple ways in which you can compare the relative strengths of various currencies and learn to trade them for potential success.

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