Forex strengthmeters - the basics

[NVP]

so we now have here a very simple strengthmeter that is telling us the divergence value of the EURUSD pair against its 20 moving average.....

so what do we do with it and what uses does it have ?

lets cover that next .....and patience to all you "supertraders" out there

this strengthmeter thread was launched at everyone from beginner upwards and you need to understand the basic principles from the ground up.........as when we get deeper into the subject it is easy to lose the way......very very easy !! :smart:

N

 

[ForexLion]

interesting. I have been following from the beginning. Thanks for sharing

 

[NVP]

while we are on this subject and we have just 1 nice normal EURUSD pairchart being looked at from a strengthmeter perspective

heres 3 settings for the same chart

200ma
20ma
5ma

Do you see how the Zero crossovers become more and more frequent and intensive ?

to someone who trades MA systems this is obvious and expected but we are walking the strengthmeter route and I want to show each step clearly

as you reduce the MA setting the average line will "hug" the actual closing bar prices closer and closer like a tightening belt ..........in fact you can set the ma to just 1 .........and it will then match the current price exactly !

why is this important and of use to us ?

because a lot of Strengthmeter based systems use the crossover Zero line to signal trades on the instruments being looked at .......(buy above the Zero , Sell if below the Zero )

so where you set the MA is very important .... if you set it too low (5ma?) you will be buying and selling far to much to generate any long term profits ........but if you set it too high (200ma?) you will do better on the initial trades ....but remember the instrument will spend a long time retracing back to the Zero before you can retrade it ......and you would have also had to exit way before the Zero to make any money (try it on a 200ma)

does this make sence ?
N

 

[NVP]

some of you may have realised that whilst we are using a simple EURUSD example to showcase the Strengthmeters basic principles......this basic indicator in the lower pane of the chart could be adapted and developed to generate trade signals for a normal pairchart

and you would be right ........what we have at this moment is a very rudimentary MACD indicator ........but I will not take that any further ...I just wanted to mention this to anyone interested in looking at that particular (and useful) indicator ....theres plenty out there in the forums and I love that tool

N:smart:

 

[NVP]

ok all we are going to say goodbye to those Xmen charts ............its time to say hello to the Line version ...its clearer to use for this training

I use the Xmen for very detailed entries/exits (and its available in the depths of my correlation thread - just "search" for it )........as its easier to see than lots of lines ........but here the Lines will be just fine moving forwards :smart:

N

 

[NVP]

so

We have now seen how the MA is shown as the Zero line on a Strengthmeter .....and how different MA settings can move the line(s) around faster and slower on it.....

feel free to ask questions as we go .........next I will expand the charts a little and bring more instruments into play.......

N

 

[eyasu]

Dear Neil,
First of all I would like to thank you for the valuable currency meter you provide for all free while you could have made fortune out of it like others. On top of that you commit yourself educating many sacrificing precious times. I have been following you for a while and I am still following to gain more from your wisdom. Thank once again
Eyasu

 

[NVP]

Thanks E...........

I am incredibly lucky with the many many talented Traders and mentors that have taken time out to help me over the last 10-11 year.....so spending time at T2W is not an issue for me....I enjoy it and anyone that really knows me is aware I like a lot of banter and interaction......i could never work in a vacuum without people contact ......

These traits are not the best credentials for a trader so I will never become full time .......part time Trading will always be my model and a nice earner one day when I can finally extract myself from the ole day job......

I am still stunned at how many forex traders dont use Forex Strengthmeters and I just try to spread the word without bothering to charge any money - especially for things that are available for free (which is most of it !)......the Jedster and I took a walk around the market recently and realised still how immature and amateur the current (and expensive) the strengthmeter products offerings are .......so we are happy to discuss them with people if they are considering buying them here :smart:

(well until we get the first solicitors letters )

not using strengthmeters to understand the forex market is like a carpenter working without a saw or an electricial not having a screwdriver .....Crazy !!

ask any questions here everyone ...........I am covering the basics here that are an essential platform for the later stages of learning

N

 

[be-positive]

not using strengthmeters to understand the forex market is like a carpenter working without a saw or an electricial not having a screwdriver .....Crazy !!

just an observation -------- but I think you need jedsir to help out with your posted charts or are you planning a new venture into 3D glasses , hope you have a laugh at post and not go in huff , keep up the great work Mr :smart

 

[NVP]

hey be-positive .........

honestly I usually dont huff............but yes .....I have had a few bad hair days in the last 4 months due to living on a building site ............fortunately the house is pretty finished now

N

 

[ForexLion]

No comments yet, just absorbing everything

 

[NVP]

Hi NVP,
I have a question which may be premature and perhaps you have it in mind to address it in due course. In which case, let me know and I'll delete this post. But, while I think of it - here it is . . .

Would I be right in thinking that there is a direct correlation between the strongest/weakest currencies and their volatility? Given that poor volatility in forex is sometimes cited as a reason not to trade it (in favour say of equity indices), finding pairs where the action is - is important. I imagine a common headache for many forex traders is seeing the perfect set up in a pair that's doing nothing and going nowhere. If the trade is taken, then there's a potential opportunity cost - plus the spread - plus being bored stupid! So, if the strengthmeter indicates not only which currencies are strong/weak, but also which ones are moving at pace, then this is doubly useful.
Tim.

hey there Tim

now that would be interesting ...telling a moderator to pull his post ? :cheesy:

great question but a little ahead of the curve for this thread in truth......

could you re-ask it on my other correlation thread ?...........I can also get the Jedster on it as well because he LOVES talking about momentum, volatility, rate of change and all that other nonsence ............and he will probably talk about William Blau as well..........jees Blau seems about as much fun as a fart in a space suit.......but has some awesome insights into this area......

http://www.amazon.com/Momentum-Direction-Divergence-Indicators-Technical/dp/0471027294

cheers
N

 

[NVP]

No comments yet, just absorbing everything

I havnt warmed up yet

 

[NVP]

I must apologise everyone on the lack of progress here to date

Now we have finally finished our property and have a few decent contacts the wife wants to build a property empire in buy to lets .....

my intial sarcastic comments over the weekend were obviously the wrong ones (given I am sleeping in the spare room ?) so I now need to spend some time trawling around these investment sites looking for inspiration and knowledge for the boss.....

so far I see lots of people offering expensive training courses , sellinars and systems that make you a millionaire in a year ..........sound familiar ?

home from home then ........hahahahaha
N

 

[NVP]

ok all we are going to say goodbye to those Xmen charts ............its time to say hello to the Line version ...its clearer to use for this training

I use the Xmen for very detailed entries/exits (and its available in the depths of my correlation thread - just "search" for it )........as its easier to see than lots of lines ........but here the Lines will be just fine moving forwards :smart:

N

ok on with the show ..........I am going to continue to use this EURUSD analogy above for a bit longer .........single lines on the chart are so much more peaceful than the armageddon coming later (kidding) :smart:

 

[NVP]

and to help things along heres all of the USD pairs available on just 1 stengthmeter

(never loaded before by me anywhere)

so all I want you to do if you want to play along is load it up (see the fancy descriptions earlier to load it )

http://www.trade2win.com/boards/forex/179468-forex-strengthmeters-basics-2.html#post2196352

and also go into the same settings area and hide all the other currencies except the blue line (Euro)

........or dont worry and load it later on as I get to the end of the teaching bit on this

N

 

[NVP]

http://www.trade2win.com/boards/forex/179468-forex-strengthmeters-basics-3.html#post2197820

ok if you reread the post above I wanted to say one more thing about how you can vary the moving average settings on a Strengthmeter (still using the simple EURUSD as an example)

heres the lower indicator now on a 500 setting .........can you see how close it resembles the ACTUAL price on the EURUSD chart above it ?

thats because at high MA settings a strengthmeter indicator can mirror the instruments/currencies/currencypairs it is measuring !

so remember that on anything you do .........comparing actual prices to mega high MA's means you are virtually showing the realtime movements without any MA skew

now thats pretty pointless if you are trading MA's on a standard chart .....but I am teaching you about Strengthmeter usages of MA's..... so please be patient as you soon see how incredibly useful this 500ma setting is and how at least 2-3 products on the market are simply doing this whilst trying to charge up to £10,000 for a course to learn it .....

yep ........sad but true

next chapter tomorrow hopefully ..........(unless i am a property tycoon by then)
N

 

[NVP]

hey all

ok we have talked about the 500ma setting now...

remember this EURUSD chart below has a Strengthmeter indicator set to just follow the E/U above it .........it is a form of strengthmeter (there are many forms) but its simply mirroring the E/U and only showing 1 pair ............this particular strengthmeter (already attached to the thread earlier) is a USD Strengthmeter .......when fully loaded up It will show you the strengths of all the G7 USD pairs on the 1 chart

so heres the simplest setting ........showing just 1 pair on the 500ma

below is what I mean regarding trading simple support and resistance levels .......buying and selling on breaches ......

Read up about price action trading rules .....you can also trade the bounces of support and resistance
and other things like the patterns for following Trends up and down ......using higher swing highs , Lower swing Lows .......

or even just set a number of Bars as a lookback and create the High and Low points as orizontal price lines and trade any breaches.........simple trend following principles

remember this looks really simple ........but it wont be as clear when you have 7 or 8 lines on the same indicator .......

N

 

[neil]

hey all

ok we have talked about the 500ma setting now...

remember this EURUSD chart below has a Strengthmeter indicator set to just follow the E/U above it .........it is a form of strengthmeter (there are many forms) but its simply mirroring the E/U and only showing 1 pair ............this particular strengthmeter (already attached to the thread earlier) is a USD Strengthmeter .......when fully loaded up It will show you the strengths of all the G7 USD pairs on the 1 chart

so heres the simplest setting ........showing just 1 pair on the 500ma

below is what I mean regarding trading simple support and resistance levels .......buying and selling on breaches ......

Read up about price action trading rules .....you can also trade the bounces of support and resistance
and other things like the patterns for following Trends up and down ......using higher swing highs , Lower swing Lows .......

or even just set a number of Bars as a lookback and create the High and Low points as orizontal price lines and trade any breaches.........simple trend following principles

remember this looks really simple ........but it wont be as clear when you have 7 or 8 lines on the same indicator .......

N

I like the concept of sopport and resistance since it is crucial to my trading but I use 365 and 150 ma's (on daily ) plus a couple of bar formations - why do you use a 500 ma ?

 

[eyasu]

Neil,
I find it interesting when I put the two currencies, EUR and USD at the same time at the bottom pane. It shows more clear the intensity of the momentum. It shows another view when they cross over too. What do you think? I am also trying MA with Fibonacci numbers, 8,13,34,55,89,144 and ...so on. But I want to stick with what you have started for you may have something in mind to address at the end. Thank you for all what you are doing.
Eyasu