Currency strength meters lag the move they describe

[Fairman]

Currency strength meters lag the move they describe

A strength meter shows which currencies are strong and weak by averaging moves across pairs. It looks clever, and for context it is.

The problem for scalpers is timing. The meter is calculated from price changes over a window, so by the time a currency registers as strong, the move that made it strong has already happened. The tool describes the past with colourful bars.

It also depends on the pairs chosen and the weighting. Different meters give different readings for the same market. Some include only major pairs, others include crosses, and the formulas vary.

Used as a filter on a higher timeframe, such as a quick look at which currencies have been strongest over the last few hours, it can help choose pairs. Used as an entry trigger on one minute data, it tends to chase.

A good test is running the meter alongside real trades for a month and noting whether its signals led or lagged the entries.

A decent use is as a background gauge on a higher timeframe, such as the last four hours, to pick which pair to trade rather than when to enter.

Has a strength meter improved pair selection, or does it mainly confirm what the chart already showed?