 Hi everyone in this video, I'm going to be talking about how to use equally weighted currency indexes to make better trading decisions and if you're unfamiliar with what a currency index is The most famous or used one or viewed one is the dollar index fire and this is an investopedia and all in indexes The US dollar index is a measure of the value of the US dollar relative to a basket of foreign currencies and so The six currencies included in the USDX are often to often referred to as America's most significant trading partners But the index has only been updated once in 1999 When the euro replaced the German mark French Frank Italian lira Dutch Gilda and Belgium Frank Consequently so consequently the index does not accurately reflect present-day US trade and so Doesn't represent US accurately represent today's US trade, but also as well It says here that the currencies that are in the US Dollar index basket of the euro the yen the pound the Canadian dollar Swiss Frank and the corona and also as well They're not equally weighted by so the euro has a 57.6 percent weight The yen has 13.6 and so on and so forth. So although it's It's used and and you'll see it in many Quoted in many publications like Bloomberg or the Financial Times It seems quite outdated. So There's an equally weighted So there's an equally weighted currency index calculation that we can use and this is Not just for the US dollar But you can use this for the euro the pound the yen the CAD the Australian dollar the New Zealand dollar and a Swiss Frank And these are the currencies that are commonly traded and And so it gives really more of an accurate picture As to what the really the strength or weakness of the currency is in comparison to the the major trading pairs that we trade today and so Basically what you're doing is you're taking this calculation. So USD E you are times USD GBP USD JPY and so on and so forth the CAD Australian dollar the New Zealand dollar and the Swiss Frank and what you're doing is you're copying that. Yeah, if you want to Put that into your trading view chart. So go to trading view if you're using trading view charts if you're not unfortunately If you're using a Metra they don't know how to how to use that or any other trading platform But if you're using trading view, then what you want to do is basically do a symbol Click on that symbol search there make sure it's on all and then you're gonna paste Yeah, paste that calculation in and then press return and then it will take you to the Calculation right and you can see it up at the top here and what this is again. This is equally weighted US dollar Index and then what else you want to do is you want to create a new list so create new list Yeah, and then call it maybe something like Current C index I just do it see I because I've already created I've got a list of these already So just call it whatever you want to call it and then when you want to add it to that that list you go add The symbol and then in my newly created currency index I'll call it see I've already got one here right see I and then it will add to the list right there and then you do the same thing with The rest of these so just copy and paste the euro and then do the same thing so on and so forth with the yen you need to times it by this number I think it's one with a 15 15 zeros I think it is the reason why if you're using the RSI indicator If you don't use this number then the RSI indicator won't display properly So you'll need that number if you're not planning on using the RSI indicator then you can just basically Use the calculation from the beginning until the end of JP Y CHF so Once you've done that and you've created your list which I have my list right here currency indexes you then can see what the The currency as an overall Is doing against the currency that you look into trade it against right? And so again, it's equally weighted now The next question is well, how do we use this? In our in our trading and so before we get into really kind of the technical side of things It's important to understand that what you want to Think about whenever looking at Trading currencies is let's say we're trading the euro dollar All right, you got the euro and you've got the dollar Now it's important Really to buy low and sell high right and so you're trying to buy that if you think that the euro is going to go higher Ultimately what you're saying is is that the euro should be going higher or should increase in value and the dollar should? decrease in value That is going to be the really the number one trade right that that would be the Highest probability trade and reason why prices are likely to trend And if you think if you think that the dollar is going to increase in value and the euro is going to decrease in value Then you're looking at something like this now if both currencies are seen as Both strong for example are both weak then you're likely to see price do something like this There's no direction because both currencies are seen as As equal either both appreciating at the same time or both devaluing at the same time And you're likely to see the market and price Go in this in this type of direction now the best trade that you can possibly have and Confluence you can have is as I said when you think that price for the Euro is going to go it's going to go up or appreciate and the currency you're trading against is likely to go lower or D-value and so what you're looking for really is a turning point At with the euro and turning points at the with the dollar. So what does that look like? So on the euro You're looking for bargain prices, right? You're not looking to trade at high You're looking to to buy at lows and sell high and the same thing with the with the dollar if you're looking Shorting the dollar you're looking at the to short the dollar at highs, right? And so from a euro perspective Yeah, we're looking at the euro index Then you should be looking at something where if you're buying the euro where there's an established low and then what you're looking for is For the euro to come down to something like here This bit lower right so you're looking for on the on the euro index for this to go higher From a an established lower demand zone or you know support zone. Yeah, and at the same time you're looking for the dollar To be an established high and For it to go Lower yeah, and D value. So you're looking at the same time for euro to be at a low and Go higher and for the dollar to be at high and go lower. That is likely to push the euro dollar to Highs to trend higher and vice versa if you're looking at obviously the euro dollar to go lower where you're buying the The dollar you'll want you want actually the dollar to be at a demand zone And you want the euro to be at a supply zone or some sort of resistance. Yeah So that is the best confluence that you Can can get now We have to also Understand which highs and which lows are we we're talking about and so on trading view There are there are the options at these bottom left-hand side And you can see 1d 5d 1m 3m 6m Ytd and 1 year 5 year and and all and so One of the time frames that I look towards is As my default is the monthly, right? So I'm looking at the monthly time frame and right now. We're on the The dollar index. Yeah, and so I'm looking at the where the highs and lows are for the month Over the past month and you can do this You can use this on a you know five day if you want to or the quarterly that the one monthly and the three Quarterly the two time frames that I look at most Of course, you can look at the the sick bump and the yearly as well We can even go down to the five day and apply this same logic and so If I'm looking at for example a monthly low Right a Monthly low. I mix and I want to be a buyer of the dollar. Yeah, I'm expecting on the euro index Yeah For the euro to be at some sort of high now the the red line and the green line is just Where you've got 80% discounts And it makes me know that we're near, you know, obviously the highest right depending on which way you're buying and selling So premiums and discounts And so I want to see the euro up Somewhere around here in order for me to look for a trade on the euro Dollar by the way, you know, well just as a reminder 50% between what would be considered a high Which is here and the low which is here would be considered fair value, right? So that is either a premium And a discount if you're looking at that from the from buying the the the dollar And vice versa if you're looking to sell the dollar then actually that would be more of a premium And this would be more of a discount, right to sell the dollar 50% of highs and lows obvious highs and lows monthly high and low would be known as fair value So if I'm buying the dollar, right, I'm only looking really For price to come around fair value and lower and the lower it comes the better the better the discount and obviously my Buyers on this is driven by my fundamentals and understanding Why I'm looking to buy the dollar I'm not looking to just base my buys and sells off of what price action is doing in the short term or even the medium term so In this example And I took this trade as well It was on about the 27th 28th. She was a 28th the first day of of December 2023 I actually took a short trade on the euro dollar and you can see here that the euro So the dollar was actually at lows now some of you might look to you know and say well How do you know whether you was at any kind of low trade or low price? Previous low price and if I zoom back out actually to the sick month What you were able to see the sick month high sick month low, right high low So where the dollar was cheap It's previously cheap around here and it was expensive up here It was a premium up here and it's discount down here You can see over the last six months where prices had come into so I was using the sixth month time frame as my reference and so Fundamentally, I want to be a buyer of the dollar for various reasons and if we now look at the euro Yeah, the euro index I'm expecting, you know the euro for the best really the best trading opportunity I want the euro to be at the door close to an expensive area So, you know the look around will look around the Wednesday the 27th and Thursday the 28th And see what the euro was doing there on the euro index and you can see around the 27th And this is again looking back at the monthly time frame Where were we we were in, you know that expensive area? Yeah for the euro so remember I want to be a seller of the euro and I want to be a buyer of the dollar and so when prices Came up into this area and into this expensive area on the euro Yeah, and it was in a bargain. I consider the bargain price on the dollar then going to the Euro dollar on that's around that same time We had this Price action here, right which eventually led to this trade going to the downside now again looking to the left You might say well Leon, what was your reference? What was it a supply zone? Was it support resistance both etc? so if you zoom out and Look at this from the From one year. This was a supply zone Yeah, that Was here Yeah, which also as well had Some confluences one of them being a Level of support and resistance previous resistance resistance Resistance prices have come up into that supply zone with that area of resistance where we know for a fact Institutions have been doing you know business We had some RSI extremes on there as well at prices have been going higher and higher Low liquidity over Christmas And so there were lots of things that were lined up and so when prices came up into this area here Yeah, at the time it was really just about understanding again where I was Where what prices were doing and where they were cheap in terms of the dollar on the sixth month Or zooming out really from July we had demand there and then with the Euro looking at the Euro also from a monthly perspective I mean zooming out even looking at the free monthly We were still More in the kind of expensive area Yeah But it was a monthly high which this was considered Zooming a bit. This was considered absolutely expensive For the Euro and we saw this major drop to the downside and because nothing had changed fundamentally in my view This was a nice area to look for Short trades and that basically played out on the Euro dollar as A trade right here to the downside so just applying that logic and that same Criteria to all of your trades rather than just looking at a random level on a on a On a currency pair. Let's say for example, you're looking at that level there. Yeah Now If prices do come back down here and you want to be a buyer of the Euro against the dollar what you want to see is the Euro at at a bargain price really on the The Euro index or somewhere at least a round fair value and all below and then you also want to see the dollar index At an expensive area or at least above its fair value going into the expensive area So it's not just looking at the level and saying I want to be a buyer It is because if you have a situation where Prices come down here and the Euro is Is in an expensive area already on the Euro index? Yeah Then you're really just buying at heights because remember you're trying to buy cheap by the Euro for cheap, right? That's what you're attempting to do if on the Euro index prices come down But it's seen as being up here on the Euro index at a level Yeah, at a high previous resistance or previous Supply zone then that's not really the time to take this trade or Even if the trade might work out It wasn't necessarily the best trade to take because on the Euro Equally weighted index and the Euro against all other currencies you were buying at an expensive You're buying at premium prices And so you that's something that you don't want to do so you can ignore that level until you get a situation where the Euro is at a bargain price across the board and The dollar as well is at an expensive price across the board or at least at Value areas where you would consider You know buying below or above fair value So that's how to use the Currency equally weighted currency index whenever you take a trade on a on a prayers just look at where you are on those equally weighted indexes and You'll make better trading decisions and in alignment with fundamentals You shouldn't go wrong too often. All right guys. Take care and speak to you soon