Hello Dave...Overall trading is going well....I keep coming across a topic that I know very little about...thought you could help....In trading forex....seems to be a fad about currency strenth meters.....I dont know how these meters come up with their numbers...or if this information is any better than just watching RSI anyway....Could you set my thinking straight regarding these strength meters..? How does the us dollar index tie into this, if at all....Thanks in advance...Jerry

Hey Jerry,

Good to hear from you and glad to hear your trading is going well.

Not sure that I have heard the term strength meter but I can see how the US Dollar Index could be referred to as a sort of strength meter which shows how strong the Dollar is in relation to all currencies.

So basically if you were looking at the EUR/USD for example then this would obviously tell you how strong or weak the US Dollar was in relation to the Euro.

What the dollar index is designed to tell you is how strong or weak the US Dollar is overall against all of the major currencies. With this in mind many traders will start any trade involving the dollar by analyzing a chart of the US Dollar Index. This gives them a feel for the direction of the US Dollar overall. If they feel that the overall direction of the Dollar from this analysis is weaker for example, they can then take this information and find the individual currency where they feel the US Dollar looks the weakest and sell the dollar and buy that currency.

Let me know if that is not what you were looking for.

Best Regards,
Dave

yes..pretty much Dave... I was confused on the dollar index...now I know that the index measures strenth among "all" other currencies..... these other "strength meters" I am referring to are popping up everywhere among the forex chat rooms, and several broker websites...(mt4 has it)... but I dont know from where they're getting their information... I will snoop around if I can find some time and forward some of the links if you would like to check them out....I have a gut feeling that the regular RSI is probably a better indicator anyway....Thanks Dave....Jerry

Just to clarify..... The USD index is computed using a "tradeweighted geometric average" of the change in 6 exchange rates against the USD relative to March, 1973. It measures the dollar's general value relative to a base of 100.00

The 6 components are:
Euro: 57.6%
Jpy: 13.6%
Gbp: 11.9%
Cad: 9.1%
Sek: 4.2%
Chf: 3.6%



As Dave said, its a useful guide for the overall strength of the USD - not just against the component ccy's.




Good Luck and Trade Well.....
Flow

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Thanks for the clarification there Flow. Will be interesting to see if we can get a breakout here.

I noticed that you are using TradeStation, how do you like them?

Best Regards,
Dave

__________________
Disclaimer: Trading is risky and can result in substantial financial loss. As always my posts are simply one traders opinion and should not be taken as trading advice. I am not a financial adviser so everyone please do their own analysis and take responsibility for their own trades.

Hi Dave

I dont use Tradestation much for execution but I like the charts.(I also like to use Fibonacci Trader charting).

Well... think we can say we got a breakout.. Now to see if it can be sustained.

On my Weekly Chart its the first close above the 50ema since Oct 06. Then, the market just reversed the following week (which may happen again), but I think we may see more USD strength and the short grey line (approx 77.40) is an area of interest to me. (Just my current thoughts and subject to change without notice - not advice)




Good Luck and Trade Well.....
Flow

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Hey Flow,

Glad to hear from you and thanks for the update, I can see why the level that you have pointed out would be significant.

If you don't mind my asking to you trade the Dollar Index as well or just use it as a gauge when trading positions in the spot market?

Best Regards,
Dave

__________________
Disclaimer: Trading is risky and can result in substantial financial loss. As always my posts are simply one traders opinion and should not be taken as trading advice. I am not a financial adviser so everyone please do their own analysis and take responsibility for their own trades.

Dave

I don't trade the actual index.... I track it just to get an overall picture.

I also think its sometimes possible to see trends/patterns/reversals/s&r etc on different markets that may not be the same or as clean as on the particular market you're actually trading.

This can give a "heads-up" to possibly look more closely at another market to see if something is developing/changing.(This can apply to any market, not just ccy)


Good Luck and Trade Well.....
Flow

Hey Flow,

Thanks for the response and agreed that this is a good reason to track it. I am looking at changing charting providers for the futures stuff that I track and as soon as I do I think I will start posting some daily charts on the USDX as part of my daily routine so I can do a better job of tracking it going forward.

Thanks Again,
Dave

__________________
Disclaimer: Trading is risky and can result in substantial financial loss. As always my posts are simply one traders opinion and should not be taken as trading advice. I am not a financial adviser so everyone please do their own analysis and take responsibility for their own trades.