HOW TO CALCULATE THE STRENGTH OF EACH CURRENCY

Introduction

For a while i have been battling to find the strength of a single currency, this problem came to me when my 

friend had a strategy idea to trade currency pairs with a weak and a strong currency. Hence to be able to successful trade with this strategy

one needs to find the formula to calculate the strength of each currency.

What I knew?

  I know that EUR/USD = 1,14 , so i can say (basic math).

 if EUR/USD = a, a being any positive integer 

 than EUR = a*USD 
 and  USD = EUR/a

from the above, i can also make sense of the following 

  a = Function(a/b) + Function(a/c) - Function(d/a) ; //Function: any oscillating function, eg. cos, sin, stochastic indicator

  if a > 0  the over roll pull is positive
  else if a < 0 the over roll pull is negative
  else a = 0 the pull is natural 
  

Help from the Stochastic Indicator

The stochastic indicator helps us find the strength of each currency pair, not necessarily each single currency. So we can use the formula above the strength of each currency. The more pair we add of that currency the more accurate our answer can become.

Knowing that the stochastic indicator is a oscillating indicator, and its significant values are of 20 to 80, 20 for over sold and 80 for over bought. Is very important to help us understand the formula for calculating the strength of each currency pair using the stochastic indicator.

What is the Stochastic value for a single currency?

So to find the strenght of a single currecny, you need to have access to all the values of that currency in each pair.

so find the strength of the dollar.

iStochastic(USD) = iStochastic 2(EURUSD) + iStochastic(GBPUSD) + iStochastic(AUDUSD) + iStochastic(USDJPY) + iStochastic(USDCHF) 

                     + iStochastic(USDCAD);

//please note this is the actual stochastic indicator function, this is to make it easy to read  

learn more about the stochastic indicator (Stochastic Integer Explained for begginners)

How can you benefit

   Now that you know the strenght of each currency, you can apply it to a trading stretegy that state

    "Why trading two strong currency eg. EUR/USD  whereby it makes more sense to trade a weak currency against a strong currency"

  I wont go too in depth in the logic of this strategy, but one of the reasons prices fluctuate is because one currency is getting 

  stronger or getting weaker. hence knowing the strength levels of each currency can help better predict

  the movement of the over roll currency pair in question...

So, When do you Buy or Sell?

Double double checking TRICK

   always double check, and keep track of currencies which have the biggest difference between their stohasric values.

   The greater the distance the BETTER.

   If 80 means the currency is begin over bought and 20 mean the currency is being over sold. then it's best to say 

   the minimum difference between currency pair should be (80 - 20 = 60) sixty.

   eg. if you wish to trade EUR/USD regards less if you buying or selling, the diferenc between the EUR strenght and the

   USD strength must be greater then 60. 

Conclusion

Its easy to calculate the strength of each currency when you you the stochastic indicator and apply it to your own strategy

to better choose which currency pair to trade on next, AVOID trading strong with strong or weak with weak currency pairs.

GOOD LUCK