Building a simple currency strength meter

[FXS London Scalper]

A currency strength meter compares each currency's performance against a basket of others, aiming to identify the strongest and weakest. Many versions exist, but a simple one can be built with a spreadsheet or a short script.

A basic method: for each of the eight major currencies, take the percentage change over a chosen period against each of the other seven, and average them. Rank the results. The top and bottom of the ranking form the pair with the clearest relative move.

A worked example: if over the past day the pound averages +0.4 percent against others and the yen -0.5 percent, GBPJPY shows the largest relative move.

The choice of period matters greatly. A short period reflects noise, a long one reflects trends. Some traders compare two periods for confirmation.

Strength meters summarise the past rather than forecast the future, so they are better used as filters than as signals.

Do you use a strength meter, and which period?