An introduction to the USD index for Tradestation securities
In this video we give you an introduction to the USD dollar index for Tradestation securities.
At Quantum Trading, we like to give you a choice, and to offer what we believe are the ‘best of breed’ alternatives to those indicators that many traders use. And this is another example. Many forex traders rely on the DXY indicator to signal strength and weakness in the US dollar, and this works perfectly well. It is an index that has been around for over 30 years. However, times change, and none more so than in the forex market in the last five years. The US dollar still accounts for over 87% of currency transactions, but the significance of other currencies is growing fast, and the general view is that the DXY is perhaps not so relevant as it once was, given the constituents of the underlying basket of currencies. Perhaps the three most glaring anomalies are the heavy weighting of the European currencies, the exclusion of the Australian dollar, and the minor weighting of the Japanese yen.
Whilst there are new indices being developed all the time, and indeed Bloomberg have recently launched the BBDXY as an alternative, we believe that simplicity is the key, and have therefore developed the USDX index for the Tradestation platform. This is based on the FXCM/Dow Jones index, and takes four major currencies, with an equal weighting to deliver the USDX index as follows:
- Japanese yen (JPY) – 25%
- Australian dollar (AUD) – 25%
- Euro (EUR) – 25%
- British pound (GBP) – 25%
The index is based on a notional 10,000 mini lot contract size and unlike the DXY is therefore quoted to five figures and two decimal places. It is our belief that this simple index provides a ‘real world’ view of strength and weakness in the US dollar, with a more representative sample of world currencies.
Like the QuantumDXY indicator, the Quantum USDX indicator can be used in one of three ways. First, as an inverse indicator to a major currency pair, helping you get in, stay in and get out. Second, as a confirming indicator for the Quantum Currency Strength indicator, providing a perspective against other currencies and finally, as the ultimate barometer of risk when safe haven flows prevail. It is supplied to two moving averages which are part of the index and can be adjusted accordingly to your preferred setting and style.
Whichever approach you adopt, you will no longer have to leave your Tradestation platform for a view of the US dollar.