Traders should do long trades in such strong currency written on the left side with any other currency. When heatmap shows dark or light red color in Matrix, that means currency written on the left side is weak as compared to currency written on the top of the heat map. Traders should do short trade in such weak currency written on the left side with any other currency.
Also Read: Candlesticks Pattern Currency Heat Map Explanation When heatmap shows the signal that some currency is weak as compared to all other and some other currency is strong as compared to all other.. Heat map can also be used as a decision support system along with another trading system. The currency strength chart uses different shades to accurately display the different strengths. Their currency strength chart contains four types of strength. Based on RSI numbers and the direction of price movement.
The different colours help to give traders a clear picture of the real-time strength of the currency. When a currency is rising, a forex trader can place a buy order when the colour of the heat map changes to green and then to lime green. This is because the change in colour is a sign that its strength is increasing between weak and strong.
On the other hand, when the colour shifts between firebrick to red, they can place a sell order.
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Trend Traders will particularly like this feature that we have just added as this is an indication of trend strength for the respective Forex pair and you can also see the strength in different time frames by just taking a quick look at the chart below. Probably the best way to use this Forex Heatmap is get an idea if the particular Forex pair is trending consistently. This works out extremely well when using on higher time frames. The lower time frame like the 1 minute time frame is just simply too volatile and can change almost instantly.
Try using on higher time frames like the 4 hour time frame or at least the 1 hour time frame as it provides a better indication of the strength and direction of the trend. It then plots the heat map based on the distance of the preset zone price range above and below the latest identified midpoint of price.
It also detects the historical volume of transactions based on a preset number of periods back. It then uses the volume data to identify the red color gradient assigned on each price zone. This indicator can be used by traders to have an informed assumption as to where price is more likely to move based on the Heat Map color gradients.
Some traders assume that areas where price action and volume is high is an area which is usually difficult to break out of and areas with low trade activities are easier to break out of. As such, some traders would trade breakouts in the direction of the lighter colored area. Others would have the opposite assumption. Knowing that the darker colored gradient has the most transactions, they would identify it as the relevant price range and would rather trade reversals within that area.
Conclusion The Heat Map Indicator is not an indicator which provides a clear and objective indication as to where price may break out or reverse. It only provides color gradients based on historical transactions. However, this information can still be used by traders to identify their chosen trade direction.
This indicator can be used in confluence with other technical analysis based trade setups. Heat Map Indicator for MT4 provides for an opportunity to detect various peculiarities and patterns in price dynamics which are invisible to the naked eye.
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An introduction to the currency heatmap for TradingView
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