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Reading a currency’s strength can be a great tool for Forex traders. It can help them know which direction a currency will move in a few easy steps.
Today, we will be talking about how you can know about the strength or weakness for a particular currency pair during a certain period or day.
But before that, here’s a quick look at how to analyze currency strength and how it could help your Forex trade setup.
Knowing the Currency Strength or Weakness
The currency strength or weakness indicator determines 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 will show you how strong, or how weak a currency is right now or maybe 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 make 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. They help traders know the strength of a currency and let them set their Forex trades accordingly.
With that in mind, let’s learn about a simple way to find out the currency strength for a particular day or a specific trading session.
Finding Currency Strength In SmartTrader
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 screen will show you boxes on the selected chart.
Here’s how it would look like:
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 USDOLLAR during various days.
The last box shows us that the dollar is bullish and moving up in the current day’s session.
So far, so good.
Now, to take this analysis a step further, we can compare how this performance compares with other currencies during the same time frame.
Comparing Strength of Various Currencies
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.
Have a look at the chart below…
The chart shows how the JPYX has moved against the USDOLLAR during the past few 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 has less strength as compared to the dollar in today’s trade.
So now you’ve got your own currency strength chart in a few easy clicks!
You can add further currencies or instruments on this chart to compare them with the other already plotted currencies.
Tian Kriek, Senior Currency Strategist at Market Traders Institute, has recorded a short video on this topic, which you can Watch Here.
So, that was one of the many simple ways in which you can compare the relative strengths of various currencies and trade them with potential success. For more such Forex strategies and trades, you can check out Tian’s Analyst On Demand Trading Room.
Every week, within the trading room, Tian will take you through real market conditions and help teach you the keys to being a consistent trader across the board. Just spend a little time in the trading room and we believe you could see great results for yourself. Access it by clicking here >>
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