What is a Currency Strength Meter

As we know there are many different currencies on the market. A currency strength meter (Opens in a new window) is a tool that can calculate the relative strength from a pool of currencies. To do that, it requires a lot of data about all the currency crosses from the pool. So for example if you want to get the relative strength from EUR USD AND GBP you will need to have information about the crosses EURUSD, EURGBP, and GBPUSD.  So if we take a look carefully we have each of the currencies against the other currencies. But that is not enough. Knowing the current state of the currencies can not determine their relative strength at the moment. To do that we will require additional values in the past. And not just in the past, we will require them for the moment that we want to monitor the strength. 

So for example, if we are interested in the past 24 hours, the currency strength meter will need to know the current value of all the crosses and also their value 24 hours ago. In that way, the currency strength meter can calculate the relative strength from each of the currencies. 

If we want to make the information about the strength to another level we can add a chart, so we can monitor what is actually going on in the past 24 hours.

A chart is the best way to display this type of information, as it can indicate not only the current state or current trend, but also what trends have occurred in the relative strengths of currencies prior to the current time. In this way, one can select not just the currency pair that is the weakest and the strongest instrument, but the currency pair that has the most divergent trend.

Another important thing with the currency strength meter is to choose the right period to monitor. If you are trading short-term, then you should monitor the status for the last 24 hours. But if you are trading long-term trends, then you need to monitor much larger periods like weekly movement or monthly.