hyperscalper
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Another area I recently got involved with was Currency Strength. You've seen a lot of these "toy" Currency Strength Meters which may be interesting to watch, but can they help you find trade entries, and actually make money? Not so much.
Many issues arise in Currency Strength estimation, one of which is the "stability" of the relative strengths over time. Most of these "toy" algorithms use the previous Day's Range as the basis for calculations.
I thought this was useless, so I decided to use the past 10 days of history, as the much more "stable" reference for calculations. This has several benefits:
1) it avoids "discontinuities" in the measurements from one day to the next, which
2) facilitates recording of more stable measurements over time, for Trend Analysis
So now we are able to log stable data over time, then we can look at Currency Trending itself, which is the basis for Currency Pair valuations, rather than simply Currency Pair Trending. (see the difference?)
Another area I figured out was Over Bought and Over Sold measurement, based upon internal Currency Strength relationships. Instead of just looking at Moving Averages, this actually "factors out" a specific Currency Pair and compares its current actual valuation against its "Cluster" of related Pairs "predicted" valuation.
Market Makers very much "distort" the pricing of particular Currency Pairs. This is how they respond to Support and Resistance areas, for each Currency Pair, even though Currency Pairs in Forex have "internal constraints". So Market Maker distorts these relationships for a specific Currency Pair, either forcing it "too high" or "too low" for purely Trading purposes, again to confuse Traders. We assume these "distortions" will need to be resolved in the fairly near term so we can fade these to some extent in the short term.
So we Look at the Currency Pair's "Strength" against the Strength predicted by its "Cluster" of related Currency Pairs. A "Cluster" is the group of Currency Pairs which has a given Currency in common. We look at just the 28 major pairs, and 8 major underlying Currencies.
We can thus see when a particular Currency Pair is being distorted by Market Maker, above or below the value which is "predicted" or "should" have based on its "Cluster" consensus strength (internal constraints). For me, this is one of the keys to short term Trading opportunities.
So the software dynamically alerts the Trader for Over Bought Currency Pairs, as well as Over Sold Currency Pairs. This can be used for short term scalping opportunities if you are looking across the market using 28 dominant Currency Pairs.
I'll post a couple of screenshots, one showing 4 days of Currency Strengths; and another showing a couple of weeks over the Holiday period. This is real data from the most recent trading period over the holidays and to the close of trading yesterday.
I'll mention in some followup posts certain Trading Strategies which might be used with this information.
Does anyone use Currency Strength as a major factor in their Forex Trading ?
HyperScalper
Many issues arise in Currency Strength estimation, one of which is the "stability" of the relative strengths over time. Most of these "toy" algorithms use the previous Day's Range as the basis for calculations.
I thought this was useless, so I decided to use the past 10 days of history, as the much more "stable" reference for calculations. This has several benefits:
1) it avoids "discontinuities" in the measurements from one day to the next, which
2) facilitates recording of more stable measurements over time, for Trend Analysis
So now we are able to log stable data over time, then we can look at Currency Trending itself, which is the basis for Currency Pair valuations, rather than simply Currency Pair Trending. (see the difference?)
Another area I figured out was Over Bought and Over Sold measurement, based upon internal Currency Strength relationships. Instead of just looking at Moving Averages, this actually "factors out" a specific Currency Pair and compares its current actual valuation against its "Cluster" of related Pairs "predicted" valuation.
Market Makers very much "distort" the pricing of particular Currency Pairs. This is how they respond to Support and Resistance areas, for each Currency Pair, even though Currency Pairs in Forex have "internal constraints". So Market Maker distorts these relationships for a specific Currency Pair, either forcing it "too high" or "too low" for purely Trading purposes, again to confuse Traders. We assume these "distortions" will need to be resolved in the fairly near term so we can fade these to some extent in the short term.
So we Look at the Currency Pair's "Strength" against the Strength predicted by its "Cluster" of related Currency Pairs. A "Cluster" is the group of Currency Pairs which has a given Currency in common. We look at just the 28 major pairs, and 8 major underlying Currencies.
We can thus see when a particular Currency Pair is being distorted by Market Maker, above or below the value which is "predicted" or "should" have based on its "Cluster" consensus strength (internal constraints). For me, this is one of the keys to short term Trading opportunities.
So the software dynamically alerts the Trader for Over Bought Currency Pairs, as well as Over Sold Currency Pairs. This can be used for short term scalping opportunities if you are looking across the market using 28 dominant Currency Pairs.
I'll post a couple of screenshots, one showing 4 days of Currency Strengths; and another showing a couple of weeks over the Holiday period. This is real data from the most recent trading period over the holidays and to the close of trading yesterday.
I'll mention in some followup posts certain Trading Strategies which might be used with this information.
Does anyone use Currency Strength as a major factor in their Forex Trading ?
HyperScalper
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