The currency strength meter is an indicator that shows how strong or weak a currency is in comparison to other currencies that are traded in the Forex market.

Some traders consider the Forex currency strength meter a crucial indicator when trading in currencies, as it provides the Forex trader with a broader insight into the value of the currency. That helps them make trading decisions before opening a market position on any currency pair.

It can be added easily to most trading platforms, and although currency strength meters all function in a similar way, they tend to look different. It is up to every trader to choose the one that works best for them and to make sure they can read the strength meter correctly.

“Short-term volatility is greatest at turning points and diminishes as a trend becomes established.” - George Soros

Once added to the trading platform, the currency meter algorithm works by analyzing the activities of a certain currency over the last 24 hours, and comparing the results against every other currency it is associated with.

Given the huge amount of currency pairs in the Forex market, it might become confusing for the trader to make the right decision. When a trader sees that a currency is stronger than another, it is estimated to be a winning market position.

The Forex strength meter will provide some insight to the trader regarding the best pair combination in the market that offers the best profitability, and what currency pairs correlate with each other.

This indicator analyzes the last 24 hours’ activity in the currency market and provides a visual representation of the best-performing currencies, called strong currencies. In comparison, the less well-performing ones are marked as weak currencies.

Reading the Currency Strength Meter

Reading the currency strength meter works as follows.

Looking at the image above, the reading indicates that the USD and the JPY are strong currencies, while the AUD is performing weakly. Based on the above indication, it is recommended to trade in favor of the USD or the JPY against the AUD.

However, this estimation is built on the prediction of the past 24 hours only. There is a possibility that a strong currency might change direction due to some news, and start a downtrend.

Since Forex traders rely on the volatility and the price difference between currencies to make money in the Forex market, a currency strength meter-based trading system helps the trader understand which currency pairs have enough potential to be worth trading.

Volatility in this indicator can be read from the strength difference between currencies. If a currency is strong and another currency is very weak, it means that this pair is volatile, and therefore it could be a good chance for the trader to make profits.

However, if two currencies are almost similarly strong or similarly weak, there is a possibility that this pair is going to move in the same direction, and therefore, the volatility is low and does not really present a good investing opportunity.

Currency strength indicators can be used on any trading platform, and this includes MetaTrader.

Adding the CSM indicator to MT4

A free currency strength meter is available to download on MetaQuotes by following these steps:

• Check MetaQuotes' marketplace, and search for the “Currency Strength Meter” indicator.
• Download the indicator.
• Next, we will move the downloaded file to the correct location. With the  MetaTrader 4 application running, click on “File” which is located in the top left of the window. You will see a few options in the drop-down menu that appears. Click on “Open Data Folder”. A new window will open up. In this new window, you will see several folders, double click the one named “MQL4”. This will lead you to the next set of folders, here you are going to double-click on the “indicators” folder. Simply paste the downloaded indicator into this folder.
• Restart your MetaTrader 4.
• Once the application has been restarted, add the indicator to a chart by clicking on the “View” in the top navigation bar. Then select “Navigator”.On the window that opens, click on “Custom Indicators”. Simply double-click the indicator that you want to add.

Traders can use the free version of the currency strength meter on MT4, however, if a trader wants to use more advanced features, there are paid versions available as well.

Types of the currency strength indicators

There are different shapes and forms of currency strength indicators. They can be represented either by linear charts, tables, or figures.

This type of currency strength indicator reads the relation between two currencies and measures the performance of the base currency against the quote currency.

In the above example, the chart shows the performance of all other currencies in relation to each other, which, for example, depicts a better performance for the GBP than the USD.

The other type of currency strength indicator in MT4 is called the Matrix. This indicator gives a snap view of the major currencies with a comparison against each other, which shows which currency pair is expected to be more profitable.

This strength meter type takes into consideration the possibility of having contradictory market positions in the currency market when an investor trades using more than one currency pair.

When a trader chooses to open multiple market positions for two currency pairs, there is a possibility that when one currency pair increases in value, another currency pair will decrease.

This currency strength meter helps the trader overcome this challenge by giving insights based on the historical performance of different currencies.

It might seem confusing if a trader does not know how to read the currency strength meter but it is quite simple. The colors represent the following:

• Bright green/red = strong correlation between the pairs = do not trade
• Pale green/red = weak correlation between the pairs = trade 
• Gray = no correlation between the pairs = neutral

As good as the currency strength meter sounds, there is some stuff a trader needs to take into consideration while using this indicator. Here are the major pros and cons of the MT4 currency strength meter:

Pros

• Free to add: the currency strength meter can be added directly in MT4 for free
• Easy to use: the complex process is done in the background and the trader only sees the needed information
• Future price estimation: the meter gives an insight that helps the trader make better decisions
• Protection double exposure: opening multiple market positions on correlated currencies can amplify losses for the trader, while the matrix view of the strength meter helps the trader overcome this risk

Cons

• Inaccuracy: some versions can be poorly coded, resulting in inaccurate information
• Latency: using the currency strength meter for less popular pairs can have some latency or inaccuracy
• Complexity: some strength meters use additional filters, and can confuse or mislead the trader