Date/Time: Tue, 16 Oct 2018 19:59:03 +0000
Post From: Offering To The Community: Forex: Currency Strength
|bjohnson777 (Brett Johnson) - Posts: 237|
Since this program depends on "Forex: Currency Decorrelation", they have been merged into a single compile. The download page is here at the first post:
Please keep all discussions related to "Forex: Currency Decorrelation" on that page and all discussions related to "Forex: Currency Strength" on this page for clarity.
This program completes my studies into Currency Strength. I discuss what I've found in the documentation below.
Remember that "Forex: Currency Decorrelation" depends on a bunch of extra charts that have to load and this program depends on "Forex: Currency Decorrelation" finishing its calculations. Given the delay, the initial chart may not look right and will need to be recalculated by:
Chart >> Recalculate
From the "Display Study Documentation" button:
Forex: Currency Strength. This program takes the data from my 'Forex: Currency Decorrelation' program and offers a number of standard strength calculations. This program depends on the Currency Decorrelation data, and that program must be run first. From there, it will extract the active decorrelations and automatically match and name them. This greatly simplifies the process compared to doing it by hand. If you want to see multiple currency strength graphs at once, add another instance of this program pointed to the same Currency Decorrelation source and place its output in another Chart Region. Since all data taken from the Currency Decorrelation source is scaled proportionally to each other, the strength graphs will also be properly scaled to each other. Note that positions are still relative to each other and to the 'Other Currency Bars Back' position in Currency Decorrelation. As with all programs of this type, there is no definite or absolute value for a given time position. Some graphs will shift up and down a little, but their overall data should remain relatively accurate. This is normal. You will need to adjust 'Bars Back' and all other settings to something that matches your trading style and that you're comfortable with.
Theory and Observations on Currency Strength. In researching this program, I've run across many things. These have directly influenced on how this program was written.
* All currency strength programs try to mimic currency decorrelation in some way. Most of them do it poorly. Currency decorrelation must be done to extract directional price information. This is why I use my Currency Decorrelation program as the data source.
* Once currency decorrelation is done, other programs tend to mimic Stochastic or RSI in some way to show relative strength. Some of their implementations are OK, most others are lacking. Some are closed source black boxes you have to put your faith in.
* None of the other currency strength programs I've seen account for price reversals or over bought/sold regions.
* The 'number only' indicators won't easily tell you if the current value is strengthening or weakening (obviously no graph). If the numbers are going against the strength and weakness columns, this will give you a false signal.
* Other currency strength programs often contradict each other. It's hard to figure out why with the closed source versions. Some indicators give a contrary signal to a currency that is moving in a clear direction. Many of those programs have disappeared or are no longer supported.
* By the time the other programs indicate 'super' strength and a 'great' trade, the currencies are probably in an over bought/sold region and will likely reverse.
* Some other programs try to turn this into a trading system with great promises and poor results. Some tout 'price cross currency points' where one currency in the pair crosses above/below the other. While those sort of work, they often give false and late signals. They fail to take into account all the other currencies that include this base and counter pair. Derived indicators crossing suffer the same problems for the same reasons. There is an extremely high degree of relativity. The same is true for the programs that provide binary signals. By design they are weighted more towards accuracy (>50%), but they are far from 100% accurate. These are closer to gambling than short term investing.
* Many of the other programs have fixed time frames and are unsuitable for strength indication outside of those time frames.
* My Solution:
* The proper way to trade isn't blindly following some numbers but checking each currency's decorrelated chart, the strength graphs, and matching the strong against the weak. If you want to break out the decorrelated currency to a separate chart for easier viewing, use the overlay study as the main price graph and add your favorite indicators accordingly.
* On the decorrelated currency graph AND the currency pair graph, pay close attention to SAR lines, trend lines, moving averages, Bollinger bands, and chart patterns. Wave counters also pay close attention to Fibonacci lines. Pay attention to higher time frames for overall trend direction. This is how we address the issues of trend reversals and over bought/sold regions. It's the same way as using a normal price graph. If there's a major news event and the currency reverses, the graphs will show it. A number only indicator will not.
* There really isn't an official industry wide standard for showing currency strength. That's why I didn't reinvent the wheel in my program. That's why I use what we all know: RSI, CCI, rate of change, momentum, etc. Nearly every indicator I include is an industry standard (or easy to explain) and is trivial to research how it works. Many have very clear over bought/sold regions. These won't disappear or lose support when the programmer gets bored. You are also not locked into the single custom indicator used by the other programs. If you're really desperate and I'm not around, you could extend this program with the indicator you want since this is open sourced and well documented. If you're less desperate, Sierra Chart has ways to assemble a new multi-line graph in a Chart Region manually. It may be more tedious from an end user's point of view, but it is still quite viable.
* Since my currency strength program is based on standard indicators, it can watch multiple time frames at once with no artificial limitations. Watching a higher time frame is useful for determining overall trend directions.
* The primary limitations of my currency strength program are those of Sierra Chart... which aren't very many. Be warned that as a 'barf on the screen' class indicator, adding too many instances may drive you batty... but that's more of a user limitation.
Calculations. When you select a calculation, be sure to hit the APPLY button in the settings window. Each calculation takes different options and will display those options when APPLY is hit. If you don't know the default settings for a calculation, enter 0 or 1 and hit APPLY. The default values will be filled in. Note that changing from smoothed to non-smoothed mode will break color associations. Set 'Reset Line Colors?' to YES to automatically fix them. I left this as a manual option because some people will want their own color scheme.
Calculation Types. Since Currency Decorrelation only outputs lines and not bars, only calculations that use lines will work. Something like RSI will work fine but Stochastic will not. Most of the offered calculations have direct Sierra Chart equivalents. If the output looks confusing, you can load the matching study into another Chart Region and set the data source to the decorrelated currency index line.
Supported Calculations and Comments (if any). I don't personally use all these indicators, but Sierra Chart supports them, and they were easy to integrate. Having many options is a good thing.
* RSI. Relative Strength Index.
* CCI. Commodity Channel Index.
* ROC%. Rate Of Change by Percent.
* MACD. This one can be a bit confusing without the trigger line and histogram. I recommend first running a standalone MACD in a separate Chart Region with the same settings and matching it with one of the currency strength lines. This will give you a better understanding of the line movement.
* MACD Histogram.
* Difference From Primary. With default settings, the white line in Currency Decorrelation is the first and primary currency decorrelated. With this calculation, I make the white line flat and subtract the differences from each decorrelated currency turning them into a mathematical distance that gets plotted in the strength window. If the white line is your home currency, this will show the other currencies moving towards, away, or remaining flat in a potential trade. Examples. In the decorrelation window, if the white line moves parallel to a colored line, that will show up as flat in the strength window (a bad trade). In the decorrelation window, if the white line is moving up faster than a colored line, that colored line will be shown slowly approaching the white line in the strength window (a mediocre trade). If the white line and a colored line are both converging together in the decorrelation window, that will show that colored line moving quickly towards the white line in the strength window (a good trade). Similar with both moving away (also a good trade). Avoid trading currencies that run almost always parallel to the white line in the strength window. These will not be moving in a currency pair graph. A colored line above/below the white line only shows short term strength/weakness of a currency. It is highly relative and not an overly accurate strength gauge (the main move likely being already finished). Often the far away lines from the white line will reverse and come back depending on the overall chart pattern (which is why it's important to chart carefully all currencies involved in your trades; instead of converging, the currency may continue to diverge and would make a good opposite trade). If you're trading multiple currencies other than your home currency (like synthetic pairs), look for currencies that move opposite of each other in the strength window. The ones that move parallel to each other are too correlated to each other and will not make good trades.
* Average Range. ATR requires bars for its calculation. This version is similar but is an average of the distance between 2 points on the decorrelated currency line. Use this to show which currencies are moving and volatility (similar to ATR's function).
* Awesome Oscillator.
* Linear Regression.
* Standard Deviation.
* Standard Error.
* Vertical Horizontal Filter.
I added an extra smoothing option for many of these calculations. With multiple graphs in one Chart Region, these lines get easily tangled. Extra smoothing helps to clean that up a little.
Most people will want to run 2 or 3 instances of this Currency Strength program with something like Average Range, RSI, Difference From Primary, and Rate Of Change. This will give a reasonably complete overview of the currency market.
Did you read the instructions?
'Forex: Currency Decorrelation' Source
Select where my 'Forex: Currency Decorrelation' study is running. This provides the source data for the currency strength calculations. Sierra Chart offers the option to select from a different chart, but I haven't gotten this to work properly and it will usually cause a crash. For now, make sure the source is on the same chart. Selecting the wrong source could cause this study to crash.
Selects type of calculation to run on the decorrelated currencies.
Hit APPLY to update below options.
Hit the APPLY button to update the options below for the selected calculation. Each calculation has different options that will be displayed.
Output Smoothing Period
Number of bars for the smoothing period. Set to 0 or 1 to disable.
Output Smoothing MA Type
Usually EMA, but others can be experimented with.
Reset Line Colors? (YES if non/smoothed change)
Forced reset the line colors if switching between smoothed and non-smoothed modes. Smoothed modes use a temporary array for holding calculated values. Non-smoothed modes do not. When switching between these modes, the colors need to be set up again. This is left as a manual operation because some people will want their own color scheme.
Moving Average Type
Usually SMA, but others can be experimented with.
Number of bars for the first period. Enter 0 or 1 for the calculation default.
Number of bars for the second period. Enter 0 or 1 for the calculation default.
Number of bars for the third period. Enter 0 or 1 for the calculation default.
Updated: 2016-10-15. No major function changes.
Regular compiles moved to "Brett Johnson's Standard Tool Kit" DLL.
Date Time Of Last Edit: 2016-10-15 06:45:22