Recent Strength indicator

Yes, you are right. I use them to compare the relative strength among the currencies.

Thanks for the info.

I have been trying to figure out the best spot to use as a "Base Point." I think figuring this out is crucial to the proper use of this indicator because the results are drastically different depending on that variable.

Now, clearly there is no actual equilibrium point between currencies; if an equilibrium was ever reached prices would stop changing. It is dynamic disequilibrium that keeps the market moving.

But... consider this idea....
When one currency (ex. EURUSD) reaches a major resistance level and stops there for a time, it is likely that related currencies (ex. GBPUSD) will do the same. ( If GBPUSD did not also reach a resistance but instead continued moving, it would cause EURUSD to break (what would have been) its own SR level. )

So.. when major SR levels are reached, they tend to be reached simultaneously by multiple currency pairs.

What if you defined the base point by a "maximally convergent multi-pair SR level?"

Wouldn't this be the ideal consolidation point?

I think it probably depends on how one wants to use the indicator. I merely use it as a rough guide to determining which currencies are strong or weak.

Screenshot #1 is the current D1 plot with BasePoint = -1, which causes the lines to diverge from the leftmost point.

Screenshot #2 is the same plot with BasePoint = 0, which causes the lines to converge toward the rightmost point.

You'll note that all of the curve shapes are virtually identical, but merely displaced up or down the chart. My personal preference is #2, the reasons being as follows:

a) it shows, for example, the correlation between USD (white line) and JPY (purple) more clearly, i.e. the lines are close together. (Notice how the UJ,D1 chart has been moving sideways for the last few days)

b) if you simply look at the values at the RHE of screenshot #1, you might get the impression that EUR (pink) is strong, being higher in the chart, and CHF (yellow) is weak, being low in the chart. That is correct if you want to take a 30-day view (the chart spans 30 D1 data points). However, in screenshot #2 the most recently rising currencies are grouped nearer the bottom, moving upward; that tells me that NZD (blue) is strongest; AUD (green) is resuming strength following sideways movement; CHF is starting to recover after a recent slide; EUR, GBP (red) and CAD (brown) are drifting sideways, although EUR is possibly the strongest of the three; USD and JPY are currently plummeting. I see that more clearly in #2 than in #1, but it's personal preference. You can configure the indy however you wish.

I've been long NU and AJ, and short EURCHF the last few days, with good results (check out their charts ). It's simply a case of matching a strong ccy against a weak one, and trading that pair in the appropriate direction. You can use the lower TF plots (e.g. M30/H1/H4) to pick your entries (buy when price looks like it's turning upward following a dip, and pitting it against a ccy that's falling, etc). Or you can use tools like M15/M30 S/R confluences, climax volume, ADR, and session considerations to try to pick possible daily lows (in the pair itself, if looking to buy) for low risk entries; then ride the trade while D1/W1 strength remains intact, for some great R:R trades.

Another feature I like to use is SetBaseCurrency. This sometimes helps me break ties between strength and weakness; or otherwise highlight a different perspective. Screenshot #3 (SetBaseCurrency = USD) confirms that JPY, which was previously stronger than USD, now appears to be losing that advantage. Of course we could simply look at a UJ chart to see the same thing.

In summary, all I really look for is the recent slope of the lines, relative to each other. In terms of my trading approach, this is more important than actual values, crossovers, etc, all of which can be upset by tweaking the parameter values. And, having chosen a pair to trade, what is equally important to me is that its D1 chart bears this out, in terms of being OB/OS, and/or the presence of a strong (hammer or engulfing) candle confirming a possible change in direction. Then I look to augment this edge by finding suitable patterns on the smaller timeframe waves, around which to base my entries.

Having said this, I've no doubt that there are many other uses for this indy. Ascertaining correlation is one possibility. Gaining an understanding of which currency might be 'driving' a pair is another. That's a big reason why I attempted to make the indy as configurable as I did.

But... consider this idea....
When one currency (ex. EURUSD) reaches a major resistance level and stops there for a time, it is likely that related currencies (ex. GBPUSD) will do the same. ( If GBPUSD did not also reach a resistance but instead continued moving, it would cause EURUSD to break (what would have been) its own SR level. )

So.. when major SR levels are reached, they tend to be reached simultaneously by multiple currency pairs.

What if you defined the base point by a "maximally convergent multi-pair SR level?"

I likewise believe that S/R confluence across multiple pairs is an extremely powerful concept. I never thought of this in terms of relative strength, however. At one point I was looking at writing a S/R-type indy that highlighted this phenomenon, but the idea seemed to be too difficult to implement.

Thanks for that detailed example. It is a great indy that can clearly have a vast amount of applications.

Take a look at this example. It uses NumPoints = 100 and BasePoint = 20 :
http://furlender.com/Forex/rs1.jpg

If I understand correctly, the lines are plotted relative to each other using a specific bar as a base point. Useful information is provided by the slopes of the plotted curves but NOT by the relative positions of the curves. This leads to crosses of currencies (such as those circled in the image) to be meaningless.

If such a SR "confluence point" is picked as the fixed start location for the Recent Strengths indicator, additional useful information could be gained from the resulting Relative Strength curves.

For example, if such a point is truly an equilibrium point (even a temporary one), currencies should pass through it multiple times before settling on a new equilibrium. So perhaps one could trade divergence: betting that both currencies will return to their "equilibrium" (multi-currency S/R) level.

There would be many other uses too.

Take for instance this example:
http://furlender.com/Forex/rs2.jpg

Since the base point was arbitrarily set to "100 bars ago," the crossing/intertwining of currency curves is also arbitrary.

However if that point was based on a multi-currency S/R level, additional information could be derived from that graph.

Lets pretend that the point had been intentionally assigned to such a multi-currency S/R level. The events at locations circled A) could be interpreted as rejection of an attempted polarity switch. One could make a statement such as "GBP was rejected from USD's strength level."

Events circled at B) could be interpreted as a successful switch in strength polarity, which would be accompanied by breakouts through the multi-currency S/R levels on the fx charts.

Finding such S/R levels programmatically would be tough for sure, but it might be worth it to do it manually and plug it into your indy...

I am curious if my idea makes any sense or if I am way off the mark.

Dear Hanover,

Tried to PM you but your profile doesn't allow that. So, may I ask you publicly how helpful, profit-wise, the relative strength indicator has been for you over time and, more importantly, how do you manage conflicts in readings between various timeframes?

Thanks very much,

Lenoxer

Dear MFurlend,

How would you determine a multi-currency S/R line?

Thanks,

Lenoxer

When multiple currencies are hitting their S/R at the same time.

Sorry to answer your comprehensive post with what must seem like dismissive brevity, but the simple answer is that I don't know, beyond what I've already said.

Because of the way I use the indy in my own trading, it's the recent slope of the lines that's important to me, and for the reasons I described. The point from which the lines diverge/converge is not that critical.

I too believe that S/R confluences across currency pairs must (due to probable orderflow, and the need to maintain triangular equilibrium; and everything else being equal) improve the probability of a bounce. However, I think that falls within the realms of the SR indy rather than relative strength.

Programming S/R levels across multiple pairs would not be a trivial task, especially given the need to somehow synchronize the levels when there's no real way of knowing in advance how fast each pair is going to move.

In any case, I'd need to test your idea before I could provide any kind of answer. I'm happy enough with my existing approach; hence (and forgive me if this seems selfish) there's not a lot of personal incentive for me to spend a lot of time researching anything new.

Sorry if I'm misunderstanding, or missing anything that's obvious in, your post.

Lenoxer,

It's been extremely helpful, profit-wise. I trade only part time, and mainly in demo, but I've attained profit for 8 consecutive months now, and I regard the strength indy as the single biggest reason.

The way that I use it reduces the possibility of conflicts across timeframes. The (important) settings I use are:

NumPoints = 30;
BasePoint = 0;
HistoricalShift = 0;
SetBaseCurrency = "";
SmoothingSMA = 4;
UseTickvolForWgt = false;

and the only TFs I look at are D1 (primary), W1 (for a slightly longer term view) and occasionally H4 (as a 'zoom in' to the most recent portion of D1).

Rather than repeat material I've already posted, I've explained how I use the indy as a proxy for macroeconomics here, here, here and here, and also WHY I believe it is effective. There are examples of the types of chart-based setup that I look for here, here and here.

No doubt the indy could be used profitably on lower TFs, but at that level I prefer to use confluences of different S/R types, and (more recently) some VSA, current move relative average daily range, and news and session considerations, ..... but all after I've used strength to establish the longer term direction and strength.

Please read the posts in the links, and post any questions you might have, and I'll do my best to answer them. My trading method is very discretionary and is a work in progress - I'm always looking for possible ways to improve.

All the best,
David

Dear David,

Thanks for the response and the links to your other posts. I've now read them all. And if I might, I'd like to ask the following questions:
1) I'm still not sure how you referee conflicts in multiple time frames. Since the indicator use is not, as far as I can tell, quantified, you're going to have to decide discretionarily how well the slopes of various timeframes jibe. No easy task. How do you do this?
2) And, more simply, how do you define a "good" slope from a poor slope? ---How it apprears to your eyes or is there a more quantified way of judging it?

My best, and sorry for any bother,

Lenoxer

No bother. I hope that I can explain it better this time around.

Think of the RS indy the same way you would any moving average. For example, you might be looking to buy immediately following a dip (higher low) in an uptrend, or sell immediately following a rally (lower high) in a downtrend. With the MA, you need to determine a horizon (timeframe; or wave, given that all price movement is waves within waves) for entry and exit.

And just as with MAs, the slope is merely a reflection as to how quickly price is rising or falling at any given point.

From my other posts, you will understand that RS is only a small (but nonetheless important) part of my overall strategy. However, supposing I was using only RS to trade. Let's say I was to use W1/D1 to determine the longer term trend, and H4 to time entries. From W1/D1, I see that the strong currencies are AUD (green) and NZD (blue), while CHF (yellow) has been strengthening following a fall. The weakest currency is obviously USD (white), while EUR (pink) is starting to slide once again. JPY (purple), which falls into and then out of correlation with USD, has been weakening also.

So now I would look for resumptions of these long term trends in H4 as my entry points. AUD has rising for a about 20 x H4 periods now, and hence has been a good buy. Should NZD likewise start to move north again, I will buy. EUR has been a good sell since it tipped over, and USD should be an even better one when it does likewise. It's simply a case of pairing a strong buy against a strong sell, and thus giving yourself up to 2x the opportunity for profit (since both the strong currency must become weak, and the weak one become strong, for the trend to completely reverse itself).

Any edge comes from the concept, and not necessarily the accuracy in the numbers. However, you could try varying some of the settings, and see if, over time, they improve profit. As with all trend following strategies, the concept causes losses whenever price moves sideways for along enough periods. But (1) trading the strongest vs the weakest gives the best opportunity for catching a strong, clean trend; and (2) the longer TFs (at least IMO) have the best chance of macroeconomic backing. For example, I almost doubled my account courtesy of the problems in Europe earlier this year, and also fared well with the recent demise of USD. As long as there is growing strength, or weakness, in nation's economies, meaning a steady flow of cash from one to the other for prolonged enough periods, then including long term RS as part of an overall strategy will give one the opportunity to catch these trends.

Supposing I'm using D1 RS as my entry signal. Then, as two D1 plots suddenly start to diverge, it certainly doesn't hurt to check the D1 chart of that combo to see if a decent trend continuation candle (hammer or engulfing bar) has occurred; and then further check that chart for S/R that might allow a SL placement that creates a low risk entry, or might otherwise potentially help or impede the trade. In other words, some James16-like techniques.

As with all indys, RS is nothing more than a tool, but it happens to be one that I've found to be particularly useful.

David

Hello Hannover, perfect for this indicator, like a change, it is possible to calculate from a
start date yyyy.mm.dd hh: mm
deadline yyyy.mm.dd hh: mm

cancel - numpoints
cancel - historicalshift

sorry for this english.

Hello Hannover
I ended up turning your fan, you're a fantastic person.

I'll post a suggestion

instead of using the parameter (HistoricalShift)

use this:
(NumPoints) start: yyyy.mm.dd hh: mm
(NumPoints) finish: yyyy.mm.dd hh: mm

will help you calculate a certain time

understand?

Thanks.

Anyone have any ideas why the indicator isnt painting? I'm running windows 7 with ibfx (six digit live account), any advice is appreciated.

Chart

I'm running Win XP Home SP2, I can't attempt to reproduce problems on Vista or Win 7. All I can suggest is that you read some of the earlier posts in the thread, where people have encountered a similar problem; there are a few of them.

Sorry I can't be of more help.

David

Thanks for your feedback and suggestions.

Sorry, I'm not considering any more updates to this indicator, at least in the meantime. Too busy with other work.

David

Thanks anyways. It's very noble of you to post your work for free.

Erik