How To Build Your Own Currency Index In Tradingview
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So, let’s start with the reason for why you would want to do this in the first place. As you guys know, the DXY is what we use as our broad dollar index, and in a prior video that we’ve made we’ve shown that the difference between that and other indexes are negligible in the bigger picture so we like sticking to the DXY to track the dollar.
The reason why there is more than one Dollar index is because the index has some flaws. The biggest one is that it is heavily weighted towards the EUR, which makes up almost 60% of the index at 57.6%. So, for many traders the DXY is essentially just an inverse of the Euro due to the weighting, which makes it less accurate as a true Dollar measure but still more than what we need for our analysis purposes.
But there are times when it might be worthwhile creating your own index, not only for the Dollar but this could be helpful for other currencies as well. The example that Tong spoke about was an index we built of most of the major EM currencies versus the US Dollar.
We wanted to compare a specific currency versus the US Dollar against a basket of other EM currencies. We could of course have used the DXY but there is of course a big difference between developed economy currencies or the major currencies versus that of EM currencies.
The reason we wanted to compare the performance of a basket or EM currencies against the Dollar versus another EM currency was to establish visually how much catch-up potential there was in something like the USDTRY compared to a basket of other EM currencies.
Remember during 2020 EM currencies like the CNY, MXN and ZAR was on a tear versus the Dollar, but due to the influence President Erdogan exerted on monetary policy the TRY kept losing momentum versus the Dollar despite the flood of inflows into other EM currencies.
Right, so to create an index is actually very simple. Just open up any Tradingview chart and open up the symbol search. From here you can select the pairs that you want to use for the index. Keep in mind that you are trying to create an index which will include various pairs, and that means that you need to make sure that you are selecting the correct base and quote currency layout.
For example, if you wanted to create a Dollar index that includes all the major currencies, then you need to convert the pairs to have the dollar as the base currency in all the pairs or to have it as the quote currency in all the pairs. So, for some of the regular currency pairs you might need to use an inverse pair.
So, to make this easier to explain I’ve just created a little word doc to explain what I mean with this and to show you how the formulas look that you use in the search bar.
As you can see from the first example, if I want to create an index for the major currencies versus the USD I should either have the Dollar as the quote or the base in all the options. That means if I use the USD as the quote as in the first example, then you can’t use USDCAD or USDCHF or USDJPY, you’ll need to use the inverse options of CADUSD, CHFUSD and JPYUSD (luckily Tradingview has inverse pairs for most of them).
And vice versa if the Dollar is the base then you’ll need to change the EUR, GBP, AUD and NZD to have the Dollar as the base. When it comes to the formula it’s very simple, you are simply going to type in the currency pair you want followed by an Asterix between each pair.
Now, you can either type that in directly into the symbol search in Tradingview, or you can type it out in something like Word and then just copy and past this into the search bar. So, if we take that first example and past it in, it’s going to show us how the majors performed against the Dollar, and if you want to see it like you would a regular dollar index you can either use the other formula or you can simply just invert the scale on this one.
And you can also add in the DXY to see that it’s very similar to this one.
Now if we want to create the same one like we did in the video to compare that with the USDTRY, I’ve written down the formula here so let’s copy and paste that. And then once it’s up and running we can just add in the USDTRY to compare.
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There’s a link below were you can learn more about it
https://financialsource.co
Why Professional Traders Use A Forex News Feed To Trade - https://youtu.be/EQnphXBffBQ
Always stay on the right side of the market and know what to trade every day. Sign up for a FREE TRIAL:
https://financialsource.co
------------------------
So, let’s start with the reason for why you would want to do this in the first place. As you guys know, the DXY is what we use as our broad dollar index, and in a prior video that we’ve made we’ve shown that the difference between that and other indexes are negligible in the bigger picture so we like sticking to the DXY to track the dollar.
The reason why there is more than one Dollar index is because the index has some flaws. The biggest one is that it is heavily weighted towards the EUR, which makes up almost 60% of the index at 57.6%. So, for many traders the DXY is essentially just an inverse of the Euro due to the weighting, which makes it less accurate as a true Dollar measure but still more than what we need for our analysis purposes.
But there are times when it might be worthwhile creating your own index, not only for the Dollar but this could be helpful for other currencies as well. The example that Tong spoke about was an index we built of most of the major EM currencies versus the US Dollar.
We wanted to compare a specific currency versus the US Dollar against a basket of other EM currencies. We could of course have used the DXY but there is of course a big difference between developed economy currencies or the major currencies versus that of EM currencies.
The reason we wanted to compare the performance of a basket or EM currencies against the Dollar versus another EM currency was to establish visually how much catch-up potential there was in something like the USDTRY compared to a basket of other EM currencies.
Remember during 2020 EM currencies like the CNY, MXN and ZAR was on a tear versus the Dollar, but due to the influence President Erdogan exerted on monetary policy the TRY kept losing momentum versus the Dollar despite the flood of inflows into other EM currencies.
Right, so to create an index is actually very simple. Just open up any Tradingview chart and open up the symbol search. From here you can select the pairs that you want to use for the index. Keep in mind that you are trying to create an index which will include various pairs, and that means that you need to make sure that you are selecting the correct base and quote currency layout.
For example, if you wanted to create a Dollar index that includes all the major currencies, then you need to convert the pairs to have the dollar as the base currency in all the pairs or to have it as the quote currency in all the pairs. So, for some of the regular currency pairs you might need to use an inverse pair.
So, to make this easier to explain I’ve just created a little word doc to explain what I mean with this and to show you how the formulas look that you use in the search bar.
As you can see from the first example, if I want to create an index for the major currencies versus the USD I should either have the Dollar as the quote or the base in all the options. That means if I use the USD as the quote as in the first example, then you can’t use USDCAD or USDCHF or USDJPY, you’ll need to use the inverse options of CADUSD, CHFUSD and JPYUSD (luckily Tradingview has inverse pairs for most of them).
And vice versa if the Dollar is the base then you’ll need to change the EUR, GBP, AUD and NZD to have the Dollar as the base. When it comes to the formula it’s very simple, you are simply going to type in the currency pair you want followed by an Asterix between each pair.
Now, you can either type that in directly into the symbol search in Tradingview, or you can type it out in something like Word and then just copy and past this into the search bar. So, if we take that first example and past it in, it’s going to show us how the majors performed against the Dollar, and if you want to see it like you would a regular dollar index you can either use the other formula or you can simply just invert the scale on this one.
And you can also add in the DXY to see that it’s very similar to this one.
Now if we want to create the same one like we did in the video to compare that with the USDTRY, I’ve written down the formula here so let’s copy and paste that. And then once it’s up and running we can just add in the USDTRY to compare.
-----
If you find this content helpful, you’ll love Financial Source.
There’s a link below were you can learn more about it
https://financialsource.co
