Let me take this opportunity to explain what Currency Strength Meter (CSM) is and how to take advantage of this amazing little tool, because once you start using it, you won’t take another trade without it! Here’s a brief description of CSM: a standalone program that calculates over 30+ currency pairs in real time and displays an at-a-glance view of the strengths and weaknesses of all major currencies, namely the USD, EUR, GBP, CHF, AUD, JPY, and NZD. The Strength readings vary from 0.0 to 9.0, with 0.0 being the weakest and 9.0 being the strongest (CSM 3.0.6 pictured below).
The color code used in the meter is pretty self-explanatory, with:
BLUE as weak (0.0 ~ 2.0)
YELLOW as normal (2.1 ~ 5.0)
ORANGE as strong (5.1 ~ 7.0)
RED as critical (7.1 ~ 9.0).
How To Use Currency Strength Meter?
There are many uses for the CSM, watch videos above to find out more:
One of the best uses for me is to gauge market condition before and after an economic news release. I like to look at the market and try to find the best pair(s) to trade prior to the release; for instance, look at the meter below (CSM 3.0.6 shown):
Now let’s say we are getting the Australian Retail Sales figure in just under 5 minutes, and the meter is showing AUD reading at a 6.8. If the news comes out favoring AUD, the best choice would be to BUY AUDCHF, since it has the best match up, with AUD at 6.80 and CHF at 3.00; if the news is negative for AUD, then the best choice would be to SELL AUDNZD since NZD is at 8.0.
By adjusting the pairs you trade during news releases, you can definitely add 10 ~50 pips more than just selecting a default pair, such as the AUDUSD.
How Does The Meter Calculate Currency Strength?
Here’s a quick formula on how the meter is calculated…
(PIPS / [DAILY HIGH-LOW] ) * BIS Weighted Formula + (PIPS / [DAILY HIGH-LOW] ) * BIS Weighted Formula… Then divide by Number of Pairs.
PIPS = Amount of pips this pair is at in reference to the daily range. If EURUSD is at 1.3500 and the daily range is 1.3450 to 1.3550, this figure would be 50.
Daily HIGH-LOW = This is the Daily High/Low range for the currency pair. If EURUSD’s low is 1.3450 and high is 1.3550, the daily range would be 100. The daily range is calculated from 5:00pm EST to 4:59pm EST 24 hour period, standard day for the Forex market,
BIS Weighted Formula = Once you get the reading and based on the pair, you’d multiply that using Bank of International settlement Forex volume distribution list to get the right weight.
+ = Repeat this process for every pair that contains your currency. For instance, the reading of EUR will require the meter to repeat the process 7 times: EURUSD, EURGBP, EURCHF, EURJPY, EURAUD, EURCAD, EURNZD.
Finally, you take the average reading and divide the result by the number of pairs, which is 7.
You repeat the same process for all 8 majors. You also have to keep in mind for reverse calculations as per the naming convention, because sometimes your currency could be either the base or quote currency in a pair, like USD is to USDJPY and EURUSD.
The meter does about 112 calculations per each reading, which is lightning fast considering the amount of pairs it has to go through. The advantage is that it can pinpoint you to the best pair(s) to trade by identifying both weak and strong currencies.
Make sure to watch my above videos and don’t forget to share with me how are you using my CSM.