Re: [MT_E and I] FX heatmap
Stephen Craig
__._,_.___----- Original Message -----From: John SmithSent: Thursday, July 24, 2008 9:26 AMSubject: RE: [MT_E and I] FX heatmapStephen:
Here is the Heat Map theory I posted awhile back.
Cheers,
JS
From: MetaTrader_Exper...@yahoogroups.com [mailto:MetaTrader_Exper...@yahoogroups.com] On Behalf Of Stephen Craig
Sent: Wednesday, July 23, 2008 4:16 PM
To: MetaTrader_Exper...@yahoogroups.com
Subject: Re: [MT_E and I] FX heatmap
How is the heatmap used?
Stephen
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Here is the explanation of the indicator:
When the RSI is near 50 it is shown as a white block.
When the RSI is above 50 you see green color blocks (e.g. an uptrend)
When the RSI is below 50 you see red color blocks (e.g. downtrend).
The intensity of the block colour shows strong or weak.
Below is the basic theory of Heat Maps and my interpretations of how to use them:
Heat Maps are used mainly to show CORRELATIONS among logical groupings of related currencies (i.e a STRONG currency vs. a WEAK one). They are used to determine if strength is “across the board” or is just a “rogue” pair. You are more confident if the move is correlated across multiple pairs (i.e. the map shows GREEN or RED across all pairs). They do not show precise entry or exit points but give you a feel for the general trading environment. They give a view similar to Currency Strength Meters, True Trend Meters and Cluster software.
I use Heat Maps on the 15M but do not have them on my actual trading chart (too many other indicators). I treat them like CNBC/Bloomberg TV – mainly background supporting info. I don’t stare at them all day but check periodically before entering a trade, after news events, after noticing a breakout on a pair, etc.
General Rules:
- Look for $US strength or weakness FIRST!
- If Gold is weak/strong -> look at Aussies
- If Stock Market is weak/strong -> look at Yens, Swissies
- If Oil is weak/strong -> look at Loonies
Some people complain that they don’t see huge splashes of color on their Heat Maps and only see checker board patterns. Not true; I see consistent color splashes across the board regularly. See examples below!
Do not throw up all your pairs and expect to make any sense from it unless they are sensibly grouped with the correct color mappings.
Note: Various MT4 brokers may not have all the pairs I have but the more pairs the better (remember to add “m” for mini accounts). I do not trade all those pairs even if they appear on the Heat Map.
My logical groupings are:
US Majors
- Used to determine broad $US strength
- I use GBPUSD, AUDUSD, EURUSD, NZDUSD, USDCAD, USDCHF, USDJPY on the map.
- I like the colors to be consistent - so GREEN means $US strength and RED means $US weakness (ignore the fact that a pair may be heading south but the color shows GREEN). You must then use the “invert_strength” option to get the colors consistent.
Aussies
- Use to determine broad Aussie strength (GREEN)
- I use AUDUSD, AUDCAD, AUDCHF, AUDJPY, EURAUD, GBPAUD
Cables
- Used to determine broad Cable strength (GREEN)
- I use GBPUSD, EURGBP, GBPAUD, GBPCAD, GBPCHF, GBPNZD, GBPJPY
Euros
- Used to determine broad EUR strength (GREEN)
- I use EURUSD, EURGBP, EURAUD, EURCAD, EURCHF, EURNZD, EURJPY
Gold
- Used to determine broad Aussie strength again! Yes, I know you could combine this with the Aussie Heat Map but there are some unique correlations in it and that is why I keep it separate.
- AUD is highly correlated with metals and EURUSD and USDCHF are highly correlated with GOLD. So if GOLD falls -> look for AUD to tumble also.
- I use GOLD, SILVER, AUDUSD, EURUSD, NZDUSD, USDCHF
Kiwis
- Used to determine broad Kiwi strength (GREEN)
- I use NZDUSD, AUDNZD, NZDCAD, NZDCHF, NZDJPY, GBPNZD, EURNZD
Loonies, Oil
- Used to determine broad Loonie strength (GREEN). Does anyone know of an MT4 broker that has an Oil proxy on it? I once saw a broker that had CL on it but that feed is now dead.
- CADJPY is highly correlated to oil. So if oil prices fall -> look for CAD to tumble.
- I use CADJPY, AUDCAD, EURCAD, GBPCAD, NZDCAD, CADCHF, USDCAD
Stocks
- Used to determine broad Stock Market strength (GREEN). Does anyone know of an MT4 broker with all the stock exchanges?
- YEN and CHF pairs are highly correlated to stock markets and hence risk aversion. Also, if the stock market falls -> poor US economy -> weak CAD
- I use DJI, NASDAQ, S&P500, DAX USDJPY, EURJPY, USDCHF, USDCAD and EURCAD. I wish I could find a broker with FTSE!
Swissies
- Used to determine broad Swissie strength (GREEN).
- I use USDCHF, AUDCHF, CADCHF, EURCHF, GBCHF, NZDCHF
Yens
- Used to determine broad Yen strength (GREEN).
- I use USDJPY, AUDJPY, CADJPY, CHFJPY, EURJPY, GBJPY, NZDJPY
To learn about correlations: http://www.mataf.net/en/forex/trading/correlation/table/
To learn more about Heat Maps: www.leveragefx.com/heatmap1.html
Why pay for free tools! LOL
For archives of Experts and Indicators from the MetaTrader Experts and Indicators Group
See http://www.forexmt4.com/ or http://www.lightpatch.com/forex
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