What is the actual process of calculating the price action pair strength?

<p>Calculating price action involves analyzing the price movements of a security over a specific period. Traders typically look at factors such as open, high, low, and close prices to identify patterns and trends. There is no specific mathematical formula for calculating price action; instead, it relies on visual interpretation and recognition of chart patterns.</p>

<p id="isPasted">The actual process of calculating "price action pair strength" is not based on a single, universally standardized formula, but rather involves a multi-step, comparative analysis using quantitative metrics to assess the relative performance of individual currencies within a pair.&nbsp;</p><p>The general methodology, often automated in "currency strength meters", involves the following steps:</p><p><strong>1. Identify the Base Currency</strong></p><p>First, select a specific base currency whose strength you want to measure (e.g., the U.S. Dollar, USD).&nbsp;</p><p><strong>2. Collect Data for all Related Pairs </strong></p><p>Gather price data for all major Forex pairs that include the base currency (e.g., EUR/USD, GBP/USD, USD/JPY, AUD/USD, USD/CHF, etc.) over a specific time frame (e.g., the last 24 hours, daily, weekly).&nbsp;</p><p><strong>3. Calculate Relative Price Change for Each Pair</strong>&nbsp;</p><p>For each pair, calculate the percentage change (or use an indicator like the Rate of Change, ROC) over the chosen time frame. It's crucial to adjust the sign of the percentage change depending on whether the currency is the base or quote currency in the pair:&nbsp;</p><ul><li>If the currency being measured is the base currency (e.g., EUR/USD), use the positive value of the price change.</li><li>If the currency being measured is the quote currency (e.g., EUR/USD), use the negative value of the price change (as a rising pair price indicates a weaker quote currency). </li></ul><p><strong>4. Calculate the Average Score</strong></p><p>Sum up all the adjusted percentage changes and divide by the number of pairs analyzed to get an average strength score for that specific currency.&nbsp;</p><p>Formula Example (for USD):</p><p>USD Strength = ( (+/- Change in EURUSD) + (+/- Change in GBPUSD) + ... ) / Number of USD Pairs&nbsp;</p><ul><li>(Note the sign adjustment: A rise in EUR/USD makes the USD weaker, so the USD score includes a negative value for this pair). </li></ul><p><strong>5. Compare and Rank the Results</strong></p><p>Repeat this process for all other major currencies (e.g., EUR, GBP, JPY, etc.). The resulting average scores are then used to rank the currencies from strongest to weakest.&nbsp;</p><p><strong>6. Determine Pair Strength</strong></p><p>The strength of a specific currency pair (e.g., GBP/JPY) is determined by comparing the individual strength scores of its components. A strong trading signal is often generated when a currency identified as strong is paired with a currency identified as weak, suggesting potential momentum in the direction of the strong currency.&nbsp;</p>