Currency Strength Meter Indicator

Configurable Currency Strength Meter Flash App

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Objective

Strength Chart represents the rate of change price movement for the eight (8) Major Currencies measured against other Majors. Results show strength and weakness against a customizable basket of currencies. Many Traders applying momentum-based strategies prefer matching Currencies that are ‘Strengthening’ and ‘Weakening’ rather than ‘Strong’ and ‘Weak’.

Percentage Change of individual Forex pairs is calculated and then subsequently grouped with like kind. The rate of changes are then aggregated to produce a percentage change for each of the eight groups. These eight (8) rate of change aggregations are then plotted on the chart together which allows both quick comparisons and in-depth analysis to be made of the underlying Currencies.

This ‘Percentage Rate of Change’ method for analyzing strength of individual pairs is different than the standard Currency Strength formula precursor that is used within our New 5NITRO+ Metatrader 4 Meter. While this percentage change formula used in this Flash-based strength chart on this page might be considered inferior to the formula used within 5N+ that was originally created by Tom Yeomans out of Nova Scotia, it suffices for purposes here. View more info about the standard CSM formula and its precursor integration into 5NITRO+.

Strength Chart also can provide trend length perspective and Overbought / Oversold relativity. These trend lengths and OBOS overextended data on higher time frames serve as possible indications for Mean Reversion strategies or to hedge risks. In-depth observations of Mean Reversion on the Weekly time frame is provided further below in the last sub section.

Currency Index is also a quick way to view correlations. To view a beautiful example of ‘Positive Correlation’, isolate EUR+CHF from the Hourly thru Daily.

Chart useful in identifying which related FX pairs have been or are beginning to trend. Matching combinations of Currencies with very recent sharp angle slopes in opposite directions or in the midst of can sometimes produce early warnings for their FX pairs. While these drastic slopes or spikes in a Currency will often parallel spikes in many of the related FX pairs providing very little early warning, it may be that the possible advantage actually lies in the other related FX pairs. In other words, providing a ‘Leading Indicator’ effect.

For Example: while a spike down in JPY may have been mainly prompted by spikes up in EURJPY and GBPJPY and thus all began at the same exact moment, the real opportunity may lie in CADJPY, AUDJPY, NZDJPY. These pairs may soon follow suit. When sharp slopes appear, this tends to indicate continued strength or weakness. When a Currency is neutral or drifting sideways, often it will do so in patterns that resemble ‘Sine Waves’ or cycles or simply just moving up and down within a hi-lo channel. So, these wave patterns can sometimes present the perfect setups when seeking out FX pairs that may be lagging, such as in the CADJPY example above in which it acts as the ‘Follower’ while EURJPY+GBPJPY are the ‘Leaders’*

*This is just an example to try and explain. It is not being stated either of those Yen pairs are always Leaders or always Followers. This continually changes and is highly dependent on time frames or the period of time in which pairs are measured, similar to the variability of ‘Correlations’. For more in-depth information and analysis dedicated to Leader / Follower, seek out the research of ‘Forex Automaton’.

… Can Neither be Created Nor Destroyed.    It Can Only Transform.

The Strength Index Chart in turn gives us money flow into or out of one Major Currency in relation to the seven (7) others. There is an overwhelmingly high inverse correlation that takes place. The correlation is not 100% because of course the World and Forex Market is made up of more than just the eight (8) Major Regions and Currencies. But for the most part as measured by total yearly FX volume, proceeds received from selling a particular Major (8) Currency is immediately used to purchase any combination of other (7) Major Currencies.

Because of ‘Zero Sum’ Theoretical Logic, this type of analysis capability provided by the Currency Strength Meter is unique to the Forex Market. When money flows out of a particular Stock for example, this does not necessarily mean those same funds will immediately be placed back into the Equity Market

Expand Currency Strength Chart to Maximum Size After Popping Light Boxes Above

click upper right corner to expand currency meterOpera Browsers – It was noticed the other day some sort of issue when clicking the ‘ExXpand Box’ if already at its maximum state. The white icon Opera ‘Next’ is fine. The Red icon Opera ‘Stable’ and Blue icon Opera ‘Developer’ have issues. These new Operas use Blink or Web-Kit, a form of Chrome … which is also fine.

If you are viewing on a smaller monitor, the Photo Light Box will automatically overly under-size and crop the meter. Click the grey expand button in the upper right hand corner to maximize the currency chart to its intended size:     [see pic below]

You can then better utilize the Browser Zoom to make the currency index whatever size you wish, such as maximized to fit a full 2560 x 1400 27″ monitor.

Maintaining Visual Scale Relativity of the Chart

As the number of currencies that are selected increases, the MAX + MIN visual scale relativity as a whole expands by the furthest outlier. Unless your trading or analysis specifically only calls for the same one or two Currencies to be measured, the max number of currencies selected is recommended to provide full and consistent relativity. Over time, this will prove beneficial by eliminating what can appear to be extreme moves of which may cause unjustified resulting action. This assumes that the most popular method to analyze these strengths is by constant visual comparison of the lines in relation to each other and in relation to the top and bottom boundaries of the chart box. Rather than constantly comparing the numerical percentages.

Minimal Currencies are set here by default to help minimize initial page load speed. However, the opted formula here always uses all (28) Pairs worth of Data available regardless of how many Currencies are selected by you. This helps to retain familiar relativity when making visual comparisons and provides a consistent visual scale. Always selecting ALL Currencies will retain more consistent relativity because the MAX + MIN remains more static. In other words, the vertical scale is variable. The vertical scale of the chart is always set by the strongest Currency for the chosen period of time and the weakest Currency.

Supposed Repainting of Forex Currency Strength History

There is a fairly large group of Currency Strength Meter Indicator users who use it every day, and have for about 1-3 years. We began including it here sometime in 2011. After about six months we began to receive emails claiming that the Weekly time frame is repainting. That the values and line levels had changed since the initial viewing 5-6 months prior. The same goes for lower time frame users that have sent emails noticing the history of the M15 time frame, for example, has changed.

Notice how the strength of all the Currencies always begins at 0.00%?

All Currencies showing 0.00% strengths at the very beginning of the charts to the very left is indicative of strengths being computed across a static look back period. Regardless of which size chart is chosen to view, the total look back period remains the same.

So for example when H1 is chosen, strength is always measured across a rolling thirty (30) trading day period or about (720) rolling hours. When D1 is chosen for example, strength is always measured and displayed across a rolling (365) trading day period.

‘Repainting’ Summary

Chart history is changing after periods of time because the starting point at which strength is measured from has changed.   Why?   Because the total look back period has remained static.

Trouble Identifying Time Frame Selected?

Users are having troubles identifying which time frame is selected. This remains true even directly after pressing one of the time frame buttons.

Notice how the button becomes smaller once pressed?

The time frame selected is a tad shorter vertically. Once a time frame is selected, it will become a tad shorter vertically as illustrated in the pictures below and as seen on the actual strength chart. The top picture has the 15 Minutes button pressed. The lower picture has the Daily time frame button pressed.

15 Minute Time Frame Selectedthis is currency strength meter fifteen minutes
Daily Time Frame Selectedthis is currency strength meter indicator daily time frame

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GBP Weekly Mean Reversion Observations – General Thoughts and Ideas

Zero Sum + Balance Points

FX, above all other markets, is reliably susceptible to Daily, Weekly, and Monthly Mean Reversion of both buy side and sell side due to Zero Sum theoretical logic with Week and Monthly presenting lowest risk.

Well actually, while Week and Monthly offer the lowest risk as it is defined here because we are specifically discussing the above strength chart that includes a fixed-width property, this is not necessarily true of time frames in general. It is not the action of increasing time frames that reduces risk linearly. Risk is reduced when we are taking action in and around EXTREME support or resistance areas. Accordingly then, the support and resistance levels with the longest lookbacks offer the lowest risk. So, if the chart or your view of the chart has a fixed width, like in the above index chart, you are more likely to see the highest resistance and lowest support if the time frame is higher and the zoom is the least. Hence, higher time frames present us with the lowest risk opportunities.

Since I do not personally intend on holding positions for 7 years to 20 years, let us consider the Weekly time frame as the highest rather than the Monthly. Weekly is also the highest option for the Strength Meter on this page. Also with many Brokers providing MT4, their Monthly data tends to be severely lacking. We are lucky if we can get 200 bars, even in USDJPY. Amount of Weekly History available usually gets us back to at least 1995. But, while your Weekly charts beginning some time in the 1990s should be sufficient in establishing Highs and Lows, I still have a library of Max charts from other online sources like from Google Finance and CME. This is definitely suggested before ever building Mean Reversion positions at what appears to be absolute highs or lows.

While this strength chart is a good introduction tool into Mean Reversion methods and a nice, quick reference to get a general idea of possible opportunities in the underlying currency as a whole, it is obviously recommended to study actual individual pair charts before making any decisions. Somewhat because of what was just noted. But primarily, because once we start analysing extreme support and resistance levels like this that may be 3 year, 5 year, 7 year, 10 year, or even 15 year highs and lows – they actually tend to hold up fairly well regardless of the actual pair. Meaning, exotic pairs such as GBPZAR tend to comply with multi-year support and resistance levels as well (or good) as GBPUSD, GBPJPY, EURUSD, EURJPY, AUDUSD, USDJPY, as an example. But on lesser-lookback highs and lows such as one month or even one year, I am often cautious and leary about relying on and creating huge blocks of Limit orders at these support and resistance levels to build a position from. Now, adding to an in-the-money, multi year position on a retracement to these levels? Sure. Taking some profit at these levels? Of course.

Inflation is a Problem

I never apply Mean Reversion techniques to Commodity, Equity, or Equity-based CFD SELL SIDE due to Inflation Factoring.

Inflation destroys the Zero Sum equation and directly disproves the theory of “… can neither be created nor destroyed”. The Inflation variable is like an impurity that can never be filtered out or neutralised. This is actually a good property though when it comes to BUY SIDE Mean Reversion techniques of Equities and Commodities. It is like having the wind at your back. Though at only about 3 kilometers per hour, it is more like a light breeze. Better than a vacuum though … pulling you in the wrong direction.

Inflation, and other non-Zero Sum variables, render multi-year resistance levels unreliable. And when creating huge blocks of limit sell orders in and around and up to these levels with huge blocks of stop losses then just above, reliability is a necessity. Likewise then, support levels need to be adjusted up when buying. Longer lookback levels need to be adjusted the most, recent not as much. This causes much less potential for position establishment issues however. Because I never actually move support levels up, it tends to mean that I will just not end up with as many units as preferred, rather than having an entire position stopped out immediately which would happen often if selling.

Keep in mind, positions with the possibility of lasting up to 4 to 5 years are being referred to here, not swing trades. The intended hold times of positions does not matter however. It is about the reliability of support and resistance levels that have not been inflation adjusted that are the limiting issue. Even if I was swing trading looking to hold for only one month, a resistance level being used to establish a short position – may be a 20 year high, for example.

2013-04-03T01:30:12   JPY did it, why not GBP?    Can GBP finally break up out of consolidation?

JPY finally reverted sharply for us late 2012 and into 2013. Could it now finally be time for GBP to attempt a revert back Home after this multi-year grueling period of consolidation down at the Weekly bottom? A push down to -35% prior to GBP reverting remains a risk, albeit low. Although there is sizable resistance around June 2009. Enable all on the Weekly for proper perspective and view Larger Chart

2013-12-23T01:20:10 Update   Yes. GBP looks good, thus far.

GBP finally broke up out of the consolidation it had been in since 2010** Historic Mean Reversion probabilities tell us GBP is more likely to continue towards the 0.00% Mean now – rather than retracing back 100% to its consolidation, or anchor, area of -27% or breaking lower and testing the previously feared -35% area. The risk appears low of this retracement occurring from a historical Mean Reversion technical basis and fundamentally low risk due to an overwhelming majority of top world economists agreeing that the BOE is leaning towards rate increases by the end of 2014 into early 2015. All the while, most other countries except the United States are said to be showing very little growth. With the EuroZone in particular hinting of negative growth and a fear of deflation. Enable all on the Weekly for proper perspective and view Larger Chart

**At least it appeared to break up out of consolidation at that time in December 2013. One of the caveats of using a fixed-width tool like this is that the past can change sometimes drastically. Now almost one year later, there is a different set of of parameters that recent rate of change is being compared to. It now appears almost one year later that GBP remains trapped in the same consolidation it has been in since 2010. This ‘repainting’ of the past is discussed in that sub section above.

2014-10-03T11:10:20 Update   Goldman Foresees BOE Increasing at Slower Pace than The U.S. Fed

But, BOE is still expected to initialize first.

This is noteworthy as it relates to the GBP momentum being able to continue towards the Mean. The largest immediate impact of this report will be felt directly by the GBPUSD pair itself. We have already seen hard retracement prior to this report, primarily due to USD strength.

Well, I guess mentioning this retracement is redundant anyhow since we know Goldman established their and their clients’ Short positions well before this ‘for public consumption’ analysis was given freely to the public.

I assume it was also Goldman (and the like) on the Short side of GBPJPY consolidation at multi-year highs from September 18th right up until the day before they released this research report. The probability of or the speed at which the other six (6) countries increase or further decrease rates will obviously have a greater combined impact on GBP as a whole than only what this Goldman report projects.

Nevertheless using this GBP research report as an example, what my Brother and I have learned to immediately gather from such freely offered trading advice is that it is clearly intended to move the market. They want something to move in some direction. They use these public releases and television appearances together with their historically-reliable track record as a recruiting tool. Their intention is to enlist the general trading public to help them achieve some goal. They have either just established large positions, are looking to liquidate large positions, or are looking to establish large positions at a more favorable rate.

So, we can then overlay the (delayed) timing of a particular research report or trading outlook article released via Reuters or CNBC with recent highs and lows to discover where they most likely have positions. And then ideally, act quickly to begin establishing our own positions right along with them. Or if we are too far behind them, such would have been the case in GBPUSD but not GBPJPY, set our sell limit blocks and wait patiently for a retracement to get us close. If the retracement never comes or is not adequate, sit the trade out. Maybe opportunities for entry were or will become available in other GBP pairs or other highly correlated pairs and other non-FX instruments that may also be highly correlated.

It is not necessarily specifically about Goldman Sachs. It could be any large agency model institution with the ability to move markets or change sentiment with a single comment, analysis, or prediction. These underwriting agency types like Merrill, JPM, Citi, and now Goldman more so in recent years as they are shifting away from MM, all have generally the same model, client-types, and thus goals. So they tend to all be on the same page and trade generally in tandem. The research findings or analysis of one institution and their projected response tends to be generally the same for all. The thinking and trading tends to be more mainstream. In other words, they are not Hedge Funds. The total MM activities and Prop trading of the Top 10 Investment Banks combined is becoming less and less (minus the JPM London Whale incident of course).

So it is not about the uniqueness of any of these firms or the uniqueness of how they go about getting the herd to follow suit. It’s about trying to recognize and parallel REAL MONEY positions. And like noted in The 5NITRO+ Trading Pages, it’s about trying to recognize and decipher what Goldman’s algorithms and fundamental research are indicating to them. We will never, as Retail Traders, have the IT resources or access to all necessary data for algorithmic trading. We will never afford an international research team and economists. So, we are left only with a few options. And one of those options is just to cheat off of their test paper in class. Just look over their shoulder. But first, we need to be actually taking the same test. Increasing our risk threshold per pair will allow us to trade more in sync with these large firms. Longer term outlooks will help. And once we start to trade in sync, knowing that we have large corporations fighting for our positions right alongside us allows for patience and brings clarity. It allows us to begin making more decisions in a relaxed environment based purely on Logic + Probabilities.

… or something like that :)

2014-10-14T08:19:29 Update   What About GBPCHF? Isn’t this a Low Risk Buy?

A question was asked about going Long GBPCHF on a retracement. The Weekly Strength Chart seems to be saying this is the lowest risk Mean-Reversion trade. Possibly also the lowest risk trade looking forward until the end of this trading year, until May 2015.

Again, the largest factor might be fundamental. When will BOE begin. And when they do begin, what will their forward guidance indicate about the pace. Also, what will the EuroZone look like, since EUR and CHF highly correlated.

Which is exactly what gives me caution about what that Weekly Strength Chart seems to be telling us about CHF. I do not think it is as extended to the upside as the chart tells us. I have been discounting the July 2011 spike.

  • 1. Do you think the Spring / Summer of 2011 was anomalous for CHF?
  • 2. Do you think CHF is likely to break its high correlation with EUR in 2014 2015 as it did from April 2011 through July 2011?
  • 3. If not then, do you think EURGBP will finally break the October 2008 support of 0.7700?
  • I personally am not certain about #1. I think #2 is low probability. I will continue to be uncertain about #3 until we are there, in and around and down to 0.7700. I have big blocks of Buy Limits above and down to. Big blocks of Stop Losses and Sell Stops on break below.

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    Future MT4 Currency Strength Meters

    FLOW+    A new currency strength meter for the new Metatrader Builds 600+ named FLOW+ has to be recoded from the beginning. Coding the 3NITRO+, 4NITRO+, and then 5NITRO+ upgrades for customers was the priority once this new MT4 600+ had began to roll out in February 2014. I have been using one of our older graph-output CSMs on its own dedicated spare 18.5″ monitor utilizing the MT4 compatibility engine (I assume), so F+ is still not really a priority. Other than Weekly Mean Reversion opportunities which can easily be gathered from the CSM on this page, I personally utilize CSMs as more of a 28 chart aggregation tool. I need to get a general idea of the entire FX market in one spot with just a glance, so the older FlowMeter suffices. I know what is in the code, so I know the output is perfect. Perfect enough. But a new CSM will get done eventually. Just not right now.

    Multiple display configurations and output types is the goal. Ease of use and RAM CPU friendly is a must. Constant position changing Dynamic Rankings to instantly identify strongest vs. weakest is a necessity.

    These Dynamic Rankings are trying to be modeled after LeverageFX’s Currency Strength Rankings in Block form …. the App with Green and Red blocks in which the colors are variably weighted dependent on rank. Sort of like a Heat Map.

    For anyone who has used this Top Gun software on eSignal in particular that specific CSM template, then you know how useful these instant rankings can be. This information can be especially useful for short term, intraday Traders constantly seeking to match strongest versus weakest as soon the opportunity presents itself, namely following fundamental events such as NFP.

    Metatrader 4 coding logic, such as “A single indicator can only occupy one chart location, either the main chart, or a bottom indicator window” in addition to only one output type – increases the coding limitations. However, once the base meter is split into a series of indicators – the possibilities for display combinations is increased.

    currency strength meter indicator addon to the bottom of NITRO+currency strength meter indicator addon to the top on NITRO+

    Will probably be a simple multiple time frame meter marketed initially as an add-on to the bottom or top of New 6NITRO+ or 7NITRO+ Meters … sort of like pictured to the left and to the right of the working alpha with the older NITRO+ Original

    Bookmark this page and check back in 2015 / 2016

    Sizable Machine Resources Required

    These tools are not like Stochastics or the ol’ MACD loaded on one single TF. These tools are complex and resource intensive.

    It was roughly calculated that 5NITRO+ alone, utilizing one of its 28 pair multiple meter templates, might be performing up to 15,000+ calculations per second during such times as NFP on a multi-decimal Broker. This is assuming about 2 ticks per second on average over that entire 15 minutes following release. As we all know, the initial 1-3 minutes can produce as many as 3-5 ticks per second on pipette Brokers.

    These are only the parameter calculations done by the 5N+ meter itself across the 28 pairs over the up to 7 total time frames*. This does not include the additional, whatever automatic internal calculations that are performed per each new tick by the 24 internally-aggregated Indicators themselves such as ADX, Alligator, Accelerator, Awesome Oscillator, etc, etc. These calculations are done automatically within your Metatrader Platform, but only when they are instructed to do so. Such as is what happens when 5N+ is loaded.

    *Maximum time frames calculated by 5N+ is 7.0. Mean time frames calculated by 5N+ is about 4.7. Median time frames calculated is 5.0. Minimum time frames calculated is 3.0. The Minimum of 3.0 is when loaded on the Monthly periodocity. Number of time frames used for calculation is dependent on time frame in which the meter is loaded or time frames that the User has selected from the drop down list from within the settings. The influence that each other additional time frame has on the ultimate GLOBAL% is non-linearly variably-weighted. 5NITRO+ automatically adjusts MTF influence / weightings. There is now the option to either ‘quicken’ the response of the entire meter or to ‘smooth’ the response. This new feature is called ‘Time Outlook’. Strength Lookbacks can also now be adjusted which will also have an affect on the response.

    Full breakdown + explanation of 5NITRO+ calculations and aggregations, including weightings of all used time frames – can be found here

    Yes, there will be some calculation-per-tick redundancies when adding a CSM, making it similar to that 28 pair template used in the example above. But, we have to plan for Users wanting to run both at the same time, and possibly on a different set of pairs. A User may want to use the CSM to calculate Forex pairs, while using a multiple meter 5NITRO+ configuration on Exotics, CFDs, GOLD, SILVER, OIL, and Equity Indexes or Futures. In doing so, a multiple 5N+ setup could include 50-60 meters, depending on how many Exotics and different CFDs are offered by the particular Broker. This then would push calculation-per-second into the about 25,000-30,000 range.

    So then, “Per-Tick Performance” has become an obstacle. Features and number of calculations per tick will need to be eliminated or reduced to allow for DLL calls (the new MT4+ Builds 600+ may have killed DLL calls to who Metaquotes considers “untrusted 3rd party sources”. which of course means everyone except metaquotes.net is untrusted). Not really sure what this means yet.

    Commercial Tools cannot be created only for those with 24GB RAM and Xeons. We are forced to create them for 32bit 2005-2006 1280×720 15.6″ Laptops runnin’ Windows XP with a max of 3.63GB usable RAM. Because if you are trading Retail Forex in 2014 and do not reside in the United States, these are your most likely machine specs.

    Featured Forex Meter:   New Upgraded 5NITRO+ for the New Upgraded Metatrader 4 Builds 600+this is the forex trading indicator that is featured this month for metatrader 4

    [ Download 5NITRO+.zip ]

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