Currency wars have doomed the deposits of many a brave trader. And all because the latter cannot judge the balance of power between the main players timely and impartially. But today, a fresh strategic development of professional analysts from Netherlands has come to the aid of currency market soldiers – the CSS indicator.
The early version would only compare the strength of only two currencies, but now the calculation is scaled to the maximum and the indicator is able to measure all the currency pairs traded in the Forex markets in an automatic manner. The signals of the CSS indicator are simple and intuitive: the line above zero means that the currency is increasing, the line below zero means its decline. If the line goes in a range close to zero, it is flat, or a lateral trend, and therefore there is almost no interest in this pair on part of the traders.
How it works
Input data is taken for all currencies traded on the Forex markets. When assessing the strength of any currency, for example, the Japanese yen, the indicator calculates the average inclination angle of the trend in all pairs with the yen. That is, the usual geometric inclination angle. The more active the growth or fall of a currency pair, the larger the inclination angle, and the stronger each currency of the pair individually. When the line of the moving average channel is looking up the currency is growing, and when down – it is declining. The horizontal line, again, indicates a flat.
The indicator reacts instantly to the slightest trend changes, but on timeframes H4 and D1 its indications are most stable. The greatest accuracy is achieved by including all available currency pairs in the market overview.
Significance of the indicator in real trading
Before using the indicator in real trading, please pay attention to the fact that it does not measure the volatility of currency pairs. In other words, the corrective movement can easily be confused with the trend. But the further the line moves from the zero mark, the bigger is the currency's potential for a fall or growth.
When lines cross
When two lines cross, you can see a vertical yellow line next to the currency symbol. This is a signal of the change in the trend direction.
However, there are four different types of crossing
At the limit: an uptrend is developing for one currency, and there are signs of consolidation (movements in a certain range) for the other one. In this case, there will be a green dot next to the currency symbol (if the crossing at the top limit) or red one (if it is at the bottom limit)
Outside the range limits: indicates the weakening of one currency and the strengthening of the other
Between the range limits: indicates a flat – we should wait for new signals and take our time entering a position
Mirror-like crossing: the lines cross opposite range limits - an uptrend for one currency and a downtrend for the other
Parallel movement, again, indicates a sideways trend or a consolidation, which means that the currencies are growing or falling at approximately the same rate
Installing and setting up
You can download the indicator here. Unarchive it and move the following files
to folder Indicators of your MT4 terminal. To do so, launch the terminal and go to File>Data Catalogue>MQL4>Indicators. Restart the trading terminal and connect the indicator to the chart via the navigation bar.
When connecting the indicator, you will be asked to set up the input parameters. For a start, you can save the default parameters, or you can play around with the settings.
Their description is as follows:
- autoSymbols – automatic selection of symbols
- symbolsToWeigh – set list of currency pairs (autoSymbols disabled)
- maxBars – number of bars for calculation
- nonPropFont – use currencies of current pair
- addSundayToMonday — exclude Sunday from calculation (D1)
- showOnlySymbolOnChart – show only the currencies that are on the chart
- autoTimeFrame – select time frame automatically
- timeFrame – set time frames M1, M5, M15, M30, H1, H4, D1, W1, MN (autoTimeFrame disabled)
- extraTimeFrame – additional time frame
- ignoreFuture – disable redrawing
- showCrossAlerts – enable crossing alerts
- differenceTreshold – minimal spread between currencies
- showLevelCross – show range limits
- levelCrossValue – range level
- cur – show certain currency
- color – color settings
Let us have a look at a couple of examples
As you can see, JPY and NZD are parallel, which can be seen in the chart - short lateral movements. After the next consolidation, JPY is pushed forward abruptly, and then it crosses NZD and breaks the upper limit of the range, thus signaling the formation of a long-term downtrend for NZDJPY.
We enter at the crossing of the lines. Set the stop loss at the high of the previous movement. Since the signal is quite strong, take profit can be set 2-3 times higher than stop loss.
A similar example for GBPUSD. While the pound is weak, the dollar is gaining ground. The crossing occurs outside the range, which indicates a definite upward trend for the dollar. This is a good time to enter the position, even without the support of other signals. Set stop loss at the high of the previous trend or at the local high. Take profit should be set twice as high as stop loss.
The CSS indicator is simple, intuitive and easily adapted to any trading strategy
It is good at forecasting reversal trends, but it does not help to predict how long the trend will last
It is recommended to be used in conjunction with other indicators: stochastic oscillators or RSI that measures the relative strength index, as well as other trend indicators and oscillators depending on your trading strategy. Also, share your experience and tell us which indicators are most successfully combined with CSS in your opinion.
The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.