The Currency Power Meter indicator is an algorithm that measures the strength of currencies or currency pairs in relation to one another. Currency Power Meter, when added to your chart, displays the relative power of a financial instrument over a specified time period (1-hour, 4-hour, daily, etc.).
What is the Currency Power Meter Indicator?
The currency power meter is an indicator that assesses the strength of individual currencies. With this knowledge, a trader can use the weaknesses and strengths of currencies to select currency pairs to trade. It is also known as a currency strength indicator. Many variables influence currency strength. Interest rates, economies, and news are a few examples. However, using the currency strength meter indication, a trader may see the strengths of these indicators without having to make any additional calculations. This strength determination indicator depicts the strength of each currency using histograms. In front of each currency is a large and a narrow histogram. The large histogram represents currency strength on the daily chart, whereas the tight histogram represents currency strength on any other time period.
Currency Power Meter Strategy
It is simple to use the currency strength indicator. The traders could load the indicator and compare currency strength; then they could choose one that is strong and one that is weak. Then, using other forex analysis tools, such as various indicators and market structures, they can open the currency pair chart to hunt for trade entries.
For instance, a currency may have a strength of 7.5 on the daily time frame while another currency may have a strength of 2.7. So, you are looking to trade the pair of these two currencies in the daily or 4-hour timeframe. So, you may want to go to your chart, do your analysis, and be sure that your analysis agrees to what the Currency Power Meter Indicator signals. Otherwise, disregard the information on the indicator.
Buy Signal
This could be your checklist for a buy trade:
- When the indicator informs you on the strengths of two currencies that suggest a bullish trend for the pair.
Once this event occurs:
- You could open a buy position after you confirm your entry with bullish candlestick patterns.
- You could set your stop loss just below the nearest swing low.
- You could set your take profit at the nearest resistance zone, or you could exit trade when the strengths of the currencies no longer suggest a bullish trend.
- For good risk management, I would only consider trades with a risk to reward ratio of at least 1:2.
Sell Signal
This could be your checklist for a sell trade:
- When the indicator informs you on the strengths of two currencies that suggest a bearish trend for the pair.
Once this event occurs:
- You could open a sell position after you confirm your entry with bearish candlestick patterns.
- You could set your stop loss just above the nearest swing high.
- You could set your take profit at the nearest support zone, or you could exit trade when the strengths of the currencies no longer suggest a bearish trend.
- For good risk management, I would only consider trades with a risk to reward ratio of at least 1:2.
Currency Power Meter Pros & Cons
Pros
- The Currency Power Meter Indicator helps traders know the strength of currencies so that they can use the knowledge to inspire their trade decisions.
- This indicator can be used with any forex trading system or strategy to confirm trading entries or exits.
Cons
- The Currency Strength Indicator is not an entry/exit signal indicator. When you see a currency that is strong at the time, you don’t just couple it with a weak currency and make trades without doing any proper technical analysis.
- This indicator may not be suitable for scalpers on smaller timeframes. The reason for this is that high-impact news tends to produce transitory hyper-volatility over shorter timeframes. And this hypersensitivity may have an impact on the indicator’s output computation.
Conclusion
The Currency Power Meter Indicator is not, in itself, a buy or sell signal provider. However, it tells the traders what the strength of the currencies are so that they can get idea of the possible direction the trend would go when these currencies are paired against each other. Users of this indicator ought to know how to do technical analysis so that they can combine it with the information gotten from the currency strength indicator.
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