Relative Strength of Currencies MT4 Indicator
After downloading the relative strength of currencies MT4 indicator the discussions below will give you some guidance on how this indicator should be best used.
The indicator comes with an automated installation program from EAFactory but if you need help managing the indicator use this video for guidance. http://www.moneymakingforextools.com/how-to-load-a-mt4-indicator-into-the-mt4-platform/
Type of indicator
As you may know indicators are not only used to provide entry and exit signals. Most indicators are designed to provide additional information about Forex price movements.
The Relative Strength indicator is one of those indicators which mainly provides information about the Forex market and the strength and weaknesses of currencies during specified look back periods.
It is up to the trader to use that information in conjunction with his or her trading technique to gain confidence about trading decisions.
The Relative strength is mainly an informational indicator but can produce very good trading alerts that need to followed up by technical analysis confirmations
How the Indicator was designed
The indicator compares the current price of a currency cross to the price of the same currency cross over specified look back periods on a live basis.
These look back periods are:
- 3 hours
- 6 hours
- 12 hours
- 24 Hours (Daily)
- 7 days (Weekly)
- 3 Months (Quarterly)
It converts the movement into pips. If the base currency (the 1st currency in the currency cross) has strengthened compared to the quoted currency (the 2nd currency) the pips will be a positive number and if it has weakened it will be a negative number
It uses 8 main currencies:
Presentation of results
These currency comparisons are then presented in 3 tables:
- Each currencies total change compared to all other currencies by timeframe (Information for Strategy design)
- The detailed timeframe change by individual currency (Information for strategy design)
- A particular currency’s detailed change compared to the other currencies by timeframe (Potential trading signals)
2 types of traders
The Forex Market has 2 types of traders:
- “The with the trend” traders
- The “retracement” traders
The with the trend trader believes that there is a trend that has just started and that it will never end. That trader will buy strong currencies and sell weak currencies all the time.
The Retracement trader believes that the market moves in waves within specific ranges and the only thing that will stop these waves is very strong fundamental news. This trader is always looking for situations where strong currencies are about to weaken and weak currencies will strengthen. They will then enter against the current trend selling strong currencies and buying weak currencies. Sounds crazy but the best traders are in this group.
These 2 opposing trading philosophies is what drive the market and makes it so volatile.
Please bear this in mind. Before you can create trading rules in your head you must decide what type of trader you are. So buying strong currencies would look great for the with the trend trader it would seem like a disaster to a retracement trader.
The general guide is that when the market is driven by fundamentals (Like news about Greece leaving the EUR) then be a with the trend trader. When the market is ranging and no important political or economic news is pushing currencies then be a retracement trader. You could even be both at the same time. If the USD is strengthening because of good news trend trade all the USD crosses by buying the USD. But, if at the same time, the JPY is weak one moment and strong the next retracement trade the JPY crosses by buying or selling the JPY depending on its level of exhaustion.
Please bear the 2 trading approaches in mind when using the Relative Strength of Currencies information presented by this indicator.
Lets look at the first table. Please click on this link:- Table 1