Currency indices - basic thoughts

I was thinking about forex trading on the weekend, and in my mind I was breaking down the concepts to their most basic structures. Apologies if this is really basic but this was my thought process.

If I go long USD/JPY I'm buying USD and selling JPY. If USD gets stronger and JPY gets weaker, I make money. But let's say that CHF is weaker than JPY, then a better trade would be to go long USD/CHF. So then I thought the key is to find the very strongest currency and sell the very weakest currency. In this example I guess I could have looked at a CHF/JPY to see how CHF was moving in relation to JPY, but then I'd be looking at lots of charts and it would be a long and drawn out process. I remembered seeing a chart for called the USD Index, so I was thinking if I could look at indices rather than crosses, it would be much easier to identify the very strongest currencies and very weakest.

Does anyone have any thoughts on this? I've searched FF and can't see much in the way of currency indices. I've googled it and I can't find anything other than the USD Index. I found the formula for it on babypips.com and it looks weird (it contains SEK but not AUD???) and I'm not sure how to use it to create other indices.

If I can't find anything out there that makes me think either this is a brilliant and innovative way of thinking about things or a very stupid idea. It's probably the latter but I thought I'd throw this out to the much smarter people here to explain to me why this won't work.

Thanks in advance

Pete

It's a great idea in principle but currency indices are not accurate at any given moment in time because of weighting. For example the USDX is primarily EUR/USD. I mean more than 50%. I've forgotten the actual figure but you get what I mean.

A better way to achieve what you want to do is basket trading. This gives a more "real time" picture of these fluctuations. Trader 101, I think his name was, had a novel way of monitoring this which works really well. Just search FF. Only look at the first page because (as usual) everybody and his dog modified it until it was a monster no one was ever going to understand.

But from your post I think you know what to do. It's a simple calculation for the brain once you get used to it. It usually makes sense to long stronger, and short weaker currencies in crosses where there is a choice.

what about futures, every currency have something like an index futures, the chf, aud, eur, usd (index), cad, etc..

If i remember well maybe broco offer such futures in mt4, just open a demo there.

Hope it help

Thanks smikester and tunera for your responses. You're right smikester I think the weighting might be the toughest thing. A company called liteforex have their own indices here: http://www.liteforex.org/analitics_graph.php

but I'll do some research into basket and futures trading. thanks guys