A currency heatmap is an indicator designed to understand the performance of one currency in comparison with other currencies. The relative performance of various currencies can be very useful in decision making because all forex pairs are correlated.
A currency correlation in forex is a positive or negative relationship between two separate currency pairs. A positive correlation means that two currency pairs move in tandem, and a negative correlation means that they move in opposite directions.
Let’s try to understand that how we can use the heatmap to gain an edge in any trading system.
Currency Heat Map Overview
Heatmap indicates the relative strength of one currency against another. Names of the currencies are written on the left side and top of the heatmap. When heatmap shows a dark or light green color in Matrix, that means currency written on the left side is strong as compared to currency written on the top of the heat map.
Traders should do long trades in such strong currency written on the left side with any other currency. When heatmap shows dark or light red color in Matrix, that means currency written on the left side is weak as compared to currency written on the top of the heat map.
Traders should do short trade in such weak currency written on the left side with any other currency.
Also Read: Candlesticks Pattern
Currency Heat Map Explanation
When heatmap shows the signal that some currency is weak as compared to all other and some other currency is strong as compared to all other.. then traders should select the currency pair accordingly and sell the weak currency and buy the strong currency.
In the above example, AUD and NZD are strong as compare to all other currencies. So traders should look to buy any pair beginning with AUD or NZD. Heat map can also be used as a decision support system along with another trading system.
Currency Heat Map: Buy Conditions
One currency should show strength as compare to all other currencies.
Strength should be visible on 4h and daily heatmap.
Traders can buy the strong currency against any Weak currency.
Currency Heat Map: Sell conditions
- One currency should show strength as compare to all other currencies.
- Strength should be visible on 4h and daily heatmap.
- Traders can buy the strong currency against any Weak currency.
