For every new trade, the challenge of which currency pair to trade is an unavoidable obstacle since there are many pairs to trade. For instance, you are bearish on Euro with the following option to consider – EURCAD, EURAUD, EURJPY, EURGBP, EURUSD, etc., which currency pair will you trade? To overcome this challenge, you can use a live currency strength meter to determine which currency pair to trade.
The currency strength meter comes handy since it allows you to identify weak and strong currency pairs to trade. In this article, you will find some certain mistakes to avoid when using a live currency strength meter and benefits of including it in your forex trading strategy. Will this one make our best metatrader indicators page?
What is currency strength meter?
What is the fuss about a currency strength meter? A currency strength meter is like a gauge that displays which currencies pair is weak or strong. They use the exchange rates of different currencies to generate aggregate and equal strength of each currency pair.
For instance, to calculate the strength of the EURO, the currency strength meter might calculate the strength of all pairs that contain the EURO (EURCAD, EURAUD, EURJPY, EURGBP, and EURUSD) and combine these calculations before producing the result for the EURO.
Common mistakes when using a live currency Strength Meter
Today, if you decide to search for “currency strength meter,” it will return over 7.7 million results, which is quite crazy. What is crazier is that none of these results talks about mistakes a trade might get involved when using a currency strength meter.
With the number of tools available in the market, you would understand why traders lose money. With not having enough awareness of what to do and what not when it comes to using the tools. It is like a farmer who uses his tool but never performs any maintenance. Here, you will hear about stuff nobody will sincerely tell you.
Randomly using a currency strength meter
You must see a currency strength meter, like any indicator you use during trading. It has a formula that calculates the strength or weakness of a currency. However, if you don’t know the formula, it is hard to understand and trust the result. It is like the moving average indicator; you must understand the principle behind to take advantage of it.
Think about this. The principle behind it was a wrong formula. It only works on a specific timeframe. Imagine you didn’t know about these and use it on a different timeframe. You, therefore, need to know how it works, the principle behind it, and how best to use it when trading.
Using it mostly on lower timeframe
Many live currency strength meter you find online calculate changes in the price of a currency to determine its strength or weakness. However, on the lower timeframe, it is always prone to false signals because high impact news can cause a spike, which misleads the strength or weakness of a currency pair.
Therefore, avoid the mistake of using a currency strength meter that doesn’t calculate the changes in the price of a currency pair from the higher timeframe.
Timing your entry using currency strength meter
Another mistake traders make is to use the currency strength meter to enter a trade. For instance, you identify a strong currency pair and immediately jump into the market, expecting the price to go higher, but instead, it went south.
Here is why that will happen. A currency strength meter is not an indicator that is designed to generate buy or sell signals. Nevertheless, it only tells you the strength or weakness of a currency pair at a particular time.
Benefits of using a currency strength Meter
Using a currency strength meter has many advantages besides its simplicity. Most professional traders use it as a short-term indicator when trading. However, here are a few benefits of using a strength meter in your trading strategy
Removes unplanned hedging
Assuming you know the correlation strength between two different currency pair, you can avoid any unnecessary hedging of your investment. For instance, if the correlation that exists between USD/CHF and EUR/USD is positive, it is obvious that these pairs will move in the same direction.
Consequently, if you open a long trade on both pairs, you will lose on one hand while winning on the other. With the use of currency strength meter, you can prevent any unintentional hedging when trading.
Simple to use
A lot of new traders don’t like anything that complicates trading; rather, they look for simple tools to use. The currency strength meter comes handy since it is simple to understand and use. By taking a look at the graphical representation of the meter, they can know the currencies pairs that are performing well or poorly.
Acts as a short-term indicator
While another advantage is that it can be used as a short-term indicator since it displays currencies that are rising or falling. Although it is not for generating signals, you can use it to take an immediate decision or verify trade along with other signals.
Problems with currency strength meters
In as much as the benefits of using a currency strength meter sound mouthwatering, they do have certain issues. Especially when wrongly coded. It doesn’t matter if the currency strength meter you are using is expensive or cheap if it doesn’t provide accurate results; it is useless. You might experience the following if you use an outdated currency strength meter.
1. Whipsaw signals
2. MetaTrader 4 freezes
3. Memory leakage
5. PC freezes
Some meters might generate data different from what an original currency strength should generate. Today, many traders tend to reprogram currency strength meters to include filters should moving averages, MACD, and RSI. However, these additions might come with false signals and contribute to your losing streak if not careful.
Finishing Note On Live Currency Strength Meter
Using a live currency strength meter does not mean you should not analyze the market and depend on this tool. While a currency meter can act like confirmation tools, you shouldn’t depend on them totally. They are a good tool to include in your trading armory.
Trading can become simpler with the right tools and indicators. Here on this link, we have important trading tools that will enhance your trading and increase your profitability.