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**What is a currency strength meter and how does it work?**

Now, one of the struggles of a Forex trader is you’ve got many currency pairs to choose from.

For example:

You’re bullish on EURO but, you have the option to trade: EURUSD, EURJPY, EURGBP, EURAUD, EURNZD, EURCAD, etc.

So which currency pair do you trade?

Well, that’s where a currency strength meter comes into play.

It helps you to identify the strongest/weakest currencies so you can pick the right currency pair to trade (more on this later).

But first, I want you to avoid these common mistakes traders make when using the currency strength meter…

**Do you make these mistakes when using a currency strength meter indicator?**

If you google “currency strength meter”, it returns 8.3 million results — crazy.

And you know what’s crazier?

Almost none of them tells you the pitfall to avoid when using a currency strength meter.

That’s why traders lose money even with a “GPS” in their hands.

So here are the mistakes to avoid when using a currency strength meter (the stuff nobody tells you) …

**Mistake #1: You randomly use a currency strength meter without knowing how it works**

Now, a currency strength meter is like any other trading indicator.

There’s a formula behind it to determine the strength/weakness of a currency.

But if you don’t know the formula behind it, how can you trust the result of the currency strength meter?

What if the formula is wrong?

What if the currency strength meter only works on the daily timeframe but, you’re unaware of it, and use it on the lower timeframe?

That’s why no matter what tools or indicators you use, you must always know the formula behind it and how it works.

(And later, I’ll teach you how to create your own currency strength meter so you have confidence to use it.)

**Mistake #2: You use the currency strength meter to time your entries**

Now, a mistake many traders make is to blindly trade based on the currency strength meter.

For example:

You identify what’s the strongest currency pair right now and immediately buy, thinking the price will move higher — big mistake.

Here’s why…

A currency strength meter isn’t meant to generate buy/sell signals.

It only tells you which are the strongest/weakest currencies at a point in time.

Let me explain…

According to my currency strength meter right now, JPY is the strongest and GBP is the weakest…

(Don’t worry, I’ll show you how to create it later.)

But if you look at the charts right now, it’s a bad time to short the GBP/JPY…

Why?

Because you’re chasing the markets lower after it has made a big move.

There’s no logical place to set your stop loss and you’ll likely get stopped out on the pullback.

Next…

**Mistake #3: The lower timeframe is prone to false signals**

Here’s the thing:

Most currency strength meters calculate the change in price (over a fixed period) to determine which currencies are strong or weak.

But this is prone to false signals on the lower timeframe.

Why?

Because high impact news can cause a “spike” in the price which misleads the strength/weakness of a currency pair.

That’s why you want to use a currency strength meter which calculates the change in price from the higher timeframe.

And here’s how you do it…

**How to create a currency strength meter that works (and without coding)**

All currency strength meter works in a similar manner.

The idea is to calculate the change in price over a given period and then determine which are the strongest/weakest currency pairs.

Of course, you can complicate things by adding formulas, weightages to different timeframes, etc. — and it’ll not make much of a difference (besides confusing yourself).

So, for this currency strength meter, there’s no complicated formulas or any complex algorithm.

Here’s how it works…

- Create a list of major currency pairs
- Calculate the percentage change over the last 15-weeks (for the major currency pairs)
- Rank them from strongest to weakest

Let me explain…

**#1. Create a list of major currency pairs**

The list includes EUR/USD, GBP/USD, AUD/USD, NZD/USD, JPYUSD, CADUSD, CHFUSD.

Now you’re probably wondering:

“Why do you use JPYUSD instead of USDJPY?”

Simple.

You want to standardize USD as your quote currency so you can compare them “apple for apple”.

**#2: Calculate the percentage change over the last 15-weeks**

Here’s how…

- Insert the Rate of Change (ROC) indicator onto the weekly timeframe
- Change the settings to 15-period
- Do it for all major currency pairs

Here’s how to do it on TradingView:

**#3 Rank them from strongest to weakest**

Now once you’ve got the values, you want to rank them from the strongest to the weakest.

The currency pair with the highest value would rank at the top, followed by the second, third, fourth, etc.

Here’s how it’ll look like on excel:

**Pro Tip:**

You can add exotic currency pairs like USDZAR, USDTRY, USDRUB, etc. so you have more markets to trade.

**How to tweak the currency strength meter for your own trading strategy**

Now, by using the weekly prices to determine strength and weakness, you can avoid false signals from the lower timeframe.

But if you’re a short-term trader, using a 15-week ROC as your currency strength meter is too long.

So, what now?

That’s where you can tweak your currency strength meter for short-term trading.

So here are some guidelines for you:

- If you trade below the 4-hour timeframe, use 4-weeks ROC
- If you trade between the 4-hour and weekly timeframe, use 15-weeks ROC
- If you trade above the weekly timeframe, use 30-weeks ROC

Now at this point:

You know how your currency strength meter works (without any black-box algorithm). And you know how to tweak it to your own trading style.

So now the question is…

How do you use the currency strength meter for your own trading?

Well, that’s what you’ll discover next, so read on…

**How to use a currency strength meter and find the best currency pairs to ride massive trends**

Here’s how…

Use the currency strength meter and pair the strongest currency with the weakest one — so you get a strong trending market.

For example, look at the currency strength meter below…

You can see GBP is the weakest and JPY is the strongest.

And when paired together, you get GBP/JPY which is in a strong downtrend…

Remember:

A currency strength meter doesn’t help you time your entries. It helps you filter out the best currency pairs to trade.

This means you need a trading setup to get you into a trade (like breakouts, pullback, candlestick patterns, etc.).

If you want to learn how to time your entries, then check these out…

The Complete Guide to Breakout Trading

The Monster Guide to Candlestick Patterns

The Shooting Star Trading Strategy Guide

**How to use a currency strength meter and find the best currency pairs for swing trading**

When it comes to swing trading, you want the market to be either in a weak trend or range — so you can capture a swing within it.

So can a currency strength meter help with it?

You bet!

Here’s how…

You want to pair currency pairs which are of similar strength or weakness.

An example:

If you look at the currency strength meter below, EURO and AUD are ranked closely to one another (both relatively weak).

And if you pair them together, you’ll get EUR/AUD which is in a weak trend now…

And as a swing trader, you could look for buying opportunities around the 1.6000 – 1.5900 area.

If you want to learn more about swing trading, then check these out…

The NO BS Guide to Swing Trading

Swing Trading Strategies That Work

**Conclusion**

So here’s what you’ve learned today:

- A currency strength meter calculates the % change in price to rank currency pairs from strong to weak
- A currency strength meter doesn’t tell you when to enter a trade, it only helps you to filter for potential currency pairs to trade
- You can tweak your currency strength meter to adapt to different trading timeframes
- If you want to trade strong trending markets, pick a strong currency against a weak one
- If you want to capture swings in the market, pick currencies of similar strength or weakness

Now here’s what I’d like to know…

How do you use a currency strength meter?

Leave a comment below and share your thoughts with me.

Very helpful. Explains things simply. Does NOT over sell the idea. Makes strong intuitive sense. Offers some trading ideas to use this with. Many thanks – helpful contribution.

Glad to help out.

Cheers bud

Hey Rayner, what if I want to use Currency strength Meter across other markets like bonds,indices,metals and other markets… Isn’t going to work?

It will require a different method of defining strength and weakness as it’s not like currency where you have multiple markets with the same base currency.

I appreciate the work and your time you have spent to prepare this post.Its very clear and understandable…Thanks

I’m happy to hear that!

Do you have this beautiful piece in YouTube video?

Not at the moment.

Hey hey ma Man. Thanks man I ve been hungry for this info.for a long time ….so now

Hope it helps!

So …is there any app for this?

There’s a ton in the market, free and paid.

But the math behind is probably not explained.

Many Thanks Rayner for the info.

You are making sense… I was so confused about different time frames not been accurate.

You’re welcome!

Tanks boss

My pleasure!

what is an roc indicator & where do i get it

TradingView has it.

It’s the Rate Of Change indicator I think

Hi!

The value of USD is zero in your ranking example?

Yes, it’s always 0 since it’s the base currency we are comparing against.

Great topic! Excellent.Thanks Rayner a lot for your sincere, helpful training sections to trader community! Appreciate your works!

You’re welcome!

Thank Super Rayner !

Cheers

Hey Rayner,

Can you able to tell how do you manage the “Swap Charges” ? How many day you get “Swap Free” from your broker ?

I just accept it as the cost of doing business.

There’s no way to avoid it.

Thank you Rayner,

Your actually a good Mentor by always disclosing the best and simple Way to successful trading strategies to your subscribers,

I trade with currency mitres too and it pays me in my trading,but I never know I can create mine and even to use currency meter for swing trading by taking the weekest and the one close to it,

Thank you Rayner

You’re welcome!

For swing trading, we can take any pair with similar strength (don’t need to be weakest ones, like Zakari said).

So we may take two strong currencies with similar strength for swing trading?

Yes you can, they’ll likely be in a range or a weak trend which is favourable for swing trading.

Rayner – Thumbs up for the currency strength meter. Please explain in greater detail the currency strength meter. For example (1) Why 15 weeks and not 10 or 20? (2) if we need a trade setup to get you into a trade (like breakouts, pullback, candlestick patterns, etc.) Then why bother with currency strength meter in the 1st place? Please guide

Academic studies have shown markets that shows strong momentum over the last 3 – 12 months tend to continue showing strength. So 15-weeks is about 3 months of performance.

If you have a setup like a breakout and it coincides with buying the strongest market, it increases the odds of a breakout trading working out.

This is super helpful to find good set up. But I have one question, when should conduct the roc check? Is it on Saturday when all forex market are closed? Or daily routine? Or (your suggestion) … thanks a lot.

I check it on the weekends when markets are closed.

Hey Rayner, don’t it be better to compare using JPY, since there JPY pairs were using JPY as quote currency?

Yes you can apply the same concept to JPY if you wish to.

Hi Rayner:

You have a new and simple way to calculate strength.

Many strength meters use 28 pairs, you only use 7 majors.

Maybe it is not necessary to calculate 28 pairs, and your formula is just simple and works well.

Can you tell me: have you compared the results of your formula with other strength meters (like CSM by Hannover, and StrongWeak of FXCM), and got similar results?

Thanks and regards to your wife and little kid (not a baby anymore now :D).

I’ve not compared my results and I don’t know the exact formula they use to calculate it.

Day trader should use 4 weeks roc?

should we change those values every day ????????

Why would you do it?

Rayner you are great master, I always enjoy reading your books

Thank you, cheers.

Best article to filter out the trade.Thanks Rayner.

You’re welcome!

Good evening Rayner, being honest I did not know how to use this indicator correctly until your explanation, thanks for one more teaching.

My pleasure!

Hi Rayner,

How did you rank USD as number 4 in the above example?

I figured it out. It is a nice article Rayner. Will see how it unfolds in my trading.

Thanks Rayner! This is excellent. You always are.

As regards time of entering a trade, I believe your post on Moving Average Indicator guide (https://www.tradingwithrayner.com/moving-average-indicator-trading-strategy/) can be of great help. Right?

Yes, you can use that too to identify an area of value. cheers

THANK YOU FOR THESE GREAT INSIGHT. BUT THERE ARE SOME UNCLEAR PART. YOU SAID JPY (-1.06) AND CHF IS SECOND(-4.26) THE STRONGEST. BUT THERE IS CAD OF (-2.02) WHICH YOU TERM AS THIRD, BUT WHY IS “CAD” NOT SECOND. PLEASE EXPLAIN

JPY is not -1.06.

-1.06 is referring to EURO.

Ade, don’t align the entries in the ranking column to the first column. The position in the ranking column is determined by the value in the 15 week ROC column. So where you have the JPYUSD pair having the ROC of 3.38, that is the strongest ROC in the list so JPY is the strongest currency (against the USD) so it sits at the top of the Ranking column. That Ranking column could be placed below the table instead of alongside, so it doesn’t confuse. Hope that helps.

Thank you, Pete!

Hi Rayner, great stuff there. Great to know how to create a currency strength meter for free. I got perfectly how you arrived at the ranking of the major pairs except the USD. How did you arrive at the position of USD in the ranking? Many thanks.

The ranking is the “base” currency so it’s always 0.

This is a good work Rayner. You’ve really thought me an invaluable lesson. Thanks so much.

Awesome to hear that!

So how often do you update the excel sheet on the rate of change? Is it once a week?

I update it every weekend.

Hi Rayner, thanks for the awesome lesson. I’m just wondering if I can also use the ROC with currency indexes like DXY or EXY to know the strength of the individual currencies for further filtering. Is that advisable?

You might want to consider that those indices are weighted against a basket of currencies, and different currencies have a different weight assigned to it.

I see, thanks for the input! guess it will be easier to just pit one currency against one base (USD)

Thank you Rayner for your valuable inputs

My pleasure!

Are you not doing copy trading by the way?

Nope, I’m not.

yeah good idea. barchart.com currency strength meter, is created using this formular? can i trade based on their results?

I’ve no idea how they create theirs.

Hi Rayner! Great stuff here! I’m just a little confused about one part. Since we are using the USD as the base (0 value) and we reverse the pairs with USD in front (like USDJPY becomes JPYUSD), then should we reverse the ROC value as well? Like if the ROC value of USDJPY is 0.53, shouldn we make it -0.53 or something?

Yup, you should do that.

Hello Rayner, concerning the Currency Strength Calculation for JPY, should we simply invert the result of USD/JPY to get that for JPY/USD? because I cannot get the chart for JPY/USD. Thanks

I am sorry, I just noticed someone already asked similar question. But just a little modification, how do we determine the inverse, is it simply changing the sign or by getting the reciprocal? For instance if ROC for USD/JPY is 2.24, can we say ROC for JPY/USD is -2.24 or 1/2.24 = 0.44?

It’ll be -2.24

Hi Teo

According to me the formula for calculating the inverse:

Say Rate of change % for period of inverse ratio = b = JPY/USD

Say Rate of change % for period = a = USD/JPY

Use negative sign in the formula (“a”) when ROC % is a negative %.

b = [1/(1+a/100) – 1] x 100

ROC % for JPY/USD= b

For Ernest example

ROC % for USD/JPY = 2.24

b = [1/(1+a/100) – 1] x 100

b = [1/(1+2.24/100) – 1] x 100

b= [1/(1.0224) – 1] x 100

b =[0.97809077 – 1] x 100

b = -0.02190923 x 100

b = -2.190923

b is approximately -2.19%

Therefore ROC % for JPY/USD = -2.19%

I tested this by working out the currency change and prices for USD/ZAR. There will always be a difference when you swap the currencies around . You cannot just change from negative to positive or positive to negative.

Best regards

Francois

Hi Ernest

According to me the formula for calculating the inverse:

Say Rate of change % for period of inverse ratio = b = JPY/USD

Say Rate of change % for period = a = USD/JPY

Use negative sign in the formula (“a”) when ROC % is a negative %.

b = [1/(1+a/100) – 1] x 100

ROC % for JPY/USD= b

For your example

ROC % for USD/JPY = 2.24

b = [1/(1+a/100) – 1] x 100

b = [1/(1+2.24/100) – 1] x 100

b= [1/(1.0224) – 1] x 100

b =[0.97809077 – 1] x 100

b = -0.02190923 x 100

b = -2.190923

b is approximately -2.19%

Therefore ROC % for JPY/USD = approximately -2.19%.

I tested this by working out the currency change and prices for USD/ZAR. I also tested the formula on Excel to 15 digits-It gives the exact same result comparing the price changes of a currency to this above formula.

There will always be a difference when you swap the currencies around . You cannot just change from negative to positive or positive to negative. A percentage change on a number(currency price) will always be different from a percentage change on a different number(different currency price).

Best regards

Francois

No, you shouldn’t because the other pairs have USD as their base.

Just invert the sign of USDJPY and you’ll get JPYUSD.

Wow thanks alot for this free wonderful lecture,am so humbled and glad

Glad to help out!

Hey bro, what if my analysis timeframe is 30 mins and entry timeframe is 5 mins, what will be the period I could use? Thanks

Hi Rayner. Very helpful info. Just need some clarity. If I trade short term and use 4 period for ROC, then am I still using it on the weekly chart or dropping to a lower time frame, maybe H4, to determine strongest to weakest currencies?

You use it on weekly timeframe.

Sir, quick one please; don’t the ROC values display on mobile TradingView? I don’t get them at neither 4-, 15- nor 30-week periods.

Thanks!

You’ll have to check with TradingView since I don’t use it on mobile.

Hi rayner, first of all, thank you for this, and all your other documents, posts and videos. I have been trading for years, but not successfully. You put a different twist on a lot of what I have learnt and figured out for myself, so I am looking forward to improving my performance.

I have a question regarding the ROC indicator on Trading View. I have just set it up, and I can’t see anywhere that shows the current value of the ROC. Is the only way to put the cursor on the line and read it on the right hand scale? It would have been useful if the value displayed somewhere, but if it does, I can’t see it. Thanks in advance.

Yes, you’d probably have to move your cursor to identify the value of it.