Digging deeper, the aforementioned positions bring double exposure to AUD and JPY, which can be harmful for trade should the movement go in the opposite direction from the trader's expectations.
Let's see how this indicator works, and how it can aid traders in making informed trading decisions.
Correlation between different currency pairs can also signal the level of trade strategy risk. For example, if we are going long on EUR/USD and GBPUSD, and both are positively correlated pairs, it signals a possible double risk from the same position if one of the currencies is strong.
Our site constantly monitors foreign currency data in real-time to determine its strength. When you refresh the page, any changes will be shown.
Currency Strength Meter Supreme Edition is a free Currency Strength Meter plugin exclusively for traders with an Admirals account. It includes an indicator package with 16 new indicators, including the Forex correlation matrix, which enables you to view and contrast various currency pairs in real-time.
There are many different ways that you can use currency strength meters in your trading. All of them depend on your trading style.
With a Forex correlation matrix, you can see at a glance which currencies are correlated, which means you can avoid making these trades in the first place, and can consequently avoid double exposure to a weak currency.
If you trade in the direction of the trend, the strongest trend is the one that is based on the weakest and strongest currency. You can trade in a range by choosing currencies that are slightly stronger than others.
Assets with high correlation move in the same direction. For this reason, opening multiple positions with pairs that are highly correlated is not advisable, as you are essentially making the same trade more than once. This puts you in a very vulnerable position if the market turns against you. In Forex, if a trader goes long on the AUDCHF, AUDJPY, and EURJPY, a trader risks double exposure if they are highly correlated.
A second thing to keep in mind is that the timeframes within which you place a currency are determinants of its strength. EUR can be stable for today, but it is weak in monthly analysis.
If the correlation strength between different pairs is known in advance, a trader can avoid unnecessary hedging. For example, if there is a negative correlation between EUR/USD and USD/CHF, you know that these pairs are moving in different directions. Therefore, if you opened long trades on both, you would likely win on one trade and lose on the other.
The basic idea of the strengthmeter is to view it as a "filter", which allows you to make better decisions. It lets us know, for instance, whether the US dollars is strengthening or decreasing. This is always important.
Some other free features include the mini trading terminal, global sentiment widget, technical insight and Forex featured trading ideas provided by Trading Central. Ready for all this and more? Click the banner below for your FREE download!
Depending upon your Forex trading style, there may be other time frames that you need. More recent data is required if you trade intraday. Monthly data is required for long-term traders.