One of the first things which anyone learns when trading in Forex is that the market is in constant flux. Currencies are never static and they change almost minute by minute relative to other global currencies. For example, today the United States dollar (USD) might be strong and the Euro (EUR) may be week. However, something within the United States economy falters which has an impact on the relative value of the dollar. At that point the dollar may be devalued significantly on the global currencies market which would make it weak against the Euro where it had previously been strong. A Forex currency strength and weakness meter is a handy piece of software that will enable the trader to monitor the relative strengths and weakness of global currencies in real time.
Types of Strength/Weakness Meters
Traditionally, many Forex traders used strength meters that were programmed into an Excel spreadsheet but there were some inherent problems with this type of meter. Predominantly they were not compatible with software on some brokers’ websites and were almost too difficult to read. Today’s Forex currency strength and weakness meter integrates seamlessly with the Meta Trader software program to automatically monitor the leading global currencies when running. In other words, the meter looks for matching strong currencies against weak currencies.
Measuring Strong against Weak Currencies
Since Forex trades involve currency pairs, you know that you want to match the relative strengths and weaknesses two currencies. In keeping with this system, you are looking for the meter to tell you which currencies are strong and which currencies are weak. You buy strong and sell week. That is one of the cardinal rules in Forex trading. A Forex currency strength and weakness meter will show you in real time which currencies are running strong and which are running weak so that you can better match your pairs when making a trade. But that is just the tip of the iceberg in terms of what a good meter should do for the trader.
Identifying Market Trends
Another thing you should see when using a good Forex strength and weakness meter is how to identify market trends. Although it is crucial to know how currencies are matching up at any given moment, it might be better to be able to see how they are trending. This adds another dimension to the ‘buy strong/sell weak’ strategy which is in knowing when to hold. If you can see the vertical spread growing larger, you may just want to be patient a bit to let them drift a bit further apart. Keep in mind that the wider your spread the more profit you will realize when trading those pairs. In simple terms, a Forex currency strength and weakness meter tells you in real time which global currencies are strong and which are weak so that you can match them up in your buy/sell pairs.
Because the Forex market is a global market the meter will provide ongoing data from each of the markets around the world as they open and close. What you should be looking for in strength meters is ease of use. If the program you choose is not user friendly and difficult to read you will be spending more time dealing with the software than keeping an eye on the market. The Forex market is constantly changing throughout the day and a good Forex meter will require nothing from you once you have it running other than monitoring changes as they occur. Whatever Forex trading strategy you wish to employ, your Forex strength and weakness meter should be the first place you check before making a move.