About 6 or 7 years ago I developed a version of a currency strength meter. 

The original version was me just writing it down in my notes then it developed into this today.

I created it because I wanted to focus on markets that were more likely to trend.

Let’s be real. 

Markets trend because one currency is stronger than another. Strength and weakness can come from different places, a market could be strong because of the market sentiment, or because of interest rate expectations and many other factors. 

But when I was starting out I didn't know anything about fundamentals.

Although I was good at technical analysis. It’s always been a strong point of my trading. But over time I asked myself the question ‘why’ a market moves which led me to where I am now.

A nice blend of fundamental and technical analysis. 

But before I learned how to read fundamental analysis to build a picture, I had to rely on my technical knowledge. 

I have used this tool every week over the past several years, and I use it every time I come to do my weekend analysis. 

Let’s take a look at the strongest and the weakest currencies to see what opportunities are around currently.

First let’s break down the currency strength meter into two. 

I have two parts to the currency strength meter, the first part is the scoring table. Here I determine the strength and weakness of each forex pair. And then we have the change table which I monitor to show me if a currency is getting stronger or weaker. Essentially does the currency have momentum behind it. 

Scoring Table

The scoring works in a simple way.

For example, let’s take the EUR/AUD forex pair. 

If the forex pair is in an upward trend meaning that the EUR is stronger than AUD. That will score 1 to EUR and 0 to AUD. 

If the forex pair was in a downward trend it would score as 0 to EUR and 1 to AUD. 

In a ranging environment both currencies would receive a 0 score. 

Through the scoring system we get the total strength and weakness of the currency which ranges from -7 (the weakest) to +7 (the strongest). 

The aim of the game is to trade strong vs weak. 

Change Table

The change table is an integral part of the currency strength meter, because this highlights how long a currency has been strong for or if a currency is getting stronger or weaker over a period of time. 

We then map the change table out to look like what you saw earlier.

This is the latest version of the tool up to date for the week beginning 31st March.

What does it show this week?

Going into this trading week the currency strength meter tells me that the Canadian dollar is getting stronger and appears to be the strongest currency. With the weakest currency being the Australian dollar. 

So immediately without any other thoughts, I want to potentially focus some attention on AUD/CAD shorts. This information is simple to understand and develop for yourself, and gives you a place to focus, instead of scrolling through charts trying to find opportunities.

Other markets we can focus on include:

Longs: EUR/GBP, EUR/AUD, CAD/JPY, CHF/JPY, EUR/JPY, EUR/NZD.

Shorts: GBP/CAD, GBPCHF, AUD/CAD, AUD/CHF, NZD/CAD, NZD/CHF.

Currency Heat Map

Great, now I can begin to the next stage of my analysis, which involves what I call my ‘currency heat map’.

This now makes sure the conditions are there for the trend to form or continue. 

Here I monitor a few variables that I need in order to apply my trend based strategy. For instance, I will monitor if the price is above or below the daily 50 moving average. If the price is moving towards or away from the average. What phase is the trend in, are we in a primary or secondary phase. 

All these point to whether I will likely get a set up on these markets. 

One example I can give is AUD/CHF as I am monitoring this one closely to see if we see a continuation of the downward trend.

From the currency heatmap I can determine that AUD/CHF is bearish, last week’s close was a bullish one, but the trend remains bearish. The price is trading below the daily 50 moving average and Friday’s close closed away from it. The stochastic oscillator is pointing bearish too showing momentum is still lower. 

We can see from the chart, the price is still trending lower and is now trading within a possible sell zone. This is determined by the resistance of the previous daily swing highs. We can also see this area holds confluence with a trend line resistance formed from the high on Thursday 6th March, and anchored on the high on Tuesday 18th March. 

We know that if the price of the forex pair breaks through the resistance levels then we don’t want to be in this market anymore. So we can clearly define where our risk should be. 

I won’t go into the trading strategy as I don’t want to influence any trading decisions here. I just want to highlight that you can use a process to focus your attention on markets that could move. 

This will stop you from trying to trade a ranging market, as two strong or two weak currencies against each other will create a trading range. 

Traders if you are lost and looking to get some focus into the markets, then maybe try something like this. 

Maybe next week we can see how AUD/CHF is trading and see whether it presented a trading opportunity.

But until then, peace!