Currency Strength Settings: Does Strong Versus Weak Win?

Buying the strongest currency and selling the weakest sounds like a way to put both sides of the FX market behind one trade. Across all 28 pairs formed by eight major currencies, the result was much less convenient: the rule did not win as stated.

We tested H1, H4 and D1 charts, lookbacks from 5 to 80 bars and holding periods from 1 to 24 bars. None of the 72 strongest-versus-weakest momentum settings was profitable after spread in both 2024 and 2025. A familiar hourly starting point, 14 bars of strength followed by a four-bar hold, took 1,553 trades in 2025, won 39.6% and lost 6,236.2 basis points.

We then stopped forcing the trade to use only first and eighth place. First-versus-seventh, second-versus-eighth, second-versus-seventh and an equal-weight four-pair top-two/bottom-two basket were added. Momentum remained weak, but reversing daily 20-bar strength and holding for 12 bars was positive in 2024 and 2025 under all five selection methods. Spreading capital across all 12 possible start phases left second-versus-eighth as the stronger single-pair candidate and the four-pair basket as the diversified candidate.

“The strongest pair” needs one clarification. The meter ranks currencies, not pairs. The traded pair is the combination of the top-ranked and bottom-ranked currencies. Confusing that cross-sectional rank with the rate of change on one open chart turns two different measurements into one.

20242025profitable of 24: H1 1→0, H4 12→0, D1 3→4

What a currency strength meter measures

Every currency price is a ratio against another currency. A rising USD/JPY chart cannot tell us by itself whether the dollar is broadly strong or the yen alone is weak. A strength meter combines several bilateral rates into one index for each currency.

The BIS effective exchange-rate framework also summarizes a currency through geometric averages of bilateral rates. Its weights come from trade and its purpose is macroeconomic. Short-term trading meters have no single standard: some equal-weight pairs, some normalize by volatility, and others measure distance from a moving average.

This test fixed one transparent definition:

1. Use every one of the 28 pairs among USD, EUR, JPY, GBP, AUD, NZD, CAD and CHF.
2. Calculate each pair's log return over the last N bars.
3. Give that return a positive sign for the base currency and a negative sign for the quote currency.
4. Average the seven readings attached to each currency.
5. Rank the eight averages from strongest to weakest.

In compact form:

strength(c) = 1/7 × Σ[oriented N-bar return]

A rise in EUR/USD adds to EUR and subtracts from USD. A rise in USD/JPY adds to USD and subtracts from JPY. Averaging seven opponents keeps one unusual bilateral move from owning the whole score.

Strength has no universal scale

Changing the universe or weights changes the line. An equal-weight basket of eight liquid currencies and a trade-weighted basket of 40 partners are both valid measures of “strength,” but they answer different questions. Zero here means relative to the eight-currency average; it does not mean absolute economic strength.

Before comparing colours or ranks, check the currency universe, lookback, return definition and weighting method. A reading of +2.0 from two different meters need not represent the same move.

Currency strength settings and practical use

Four fields reach the trading result directly.

A short lookback promotes the latest shock. A long lookback preserves moves lasting days or months. “Fourteen bars” is 14 hours on H1 and roughly three trading weeks on D1, so matching the number does not match the strategy.

The holding period is also the exit and rebalance interval. A one-bar hold switches pairs every bar; a 24-bar hold ignores rank changes until the next scheduled rebalance. In the 2025 hourly grid, mean annual spread cost fell from 15,723.7 basis points at a one-bar hold to 2,981.4 at 24 bars. Rebalance frequency is not a cosmetic setting.

MT4, MT5, TradingView and Formiq

MetaTrader 5's official indicator help separates 38 built-in indicators from custom indicators. Currency Strength is not a standard entry, so the shared name does not guarantee a shared calculation.

Formiq's current chart line is a simple pair-relative reading: (current ÷ N bars ago − 1) × 100, with 14 as the starting period. The research system in this article is separate: it synchronizes 28 pairs to build an eight-currency cross-sectional rank. One pair's line cannot identify first and eighth place across the full universe.

How this was measured

Strength uses only closes available when the signal bar finishes. The trade begins at the next open, so it never receives the close that created the rank as a fill. In the added top-two/bottom-two method, the total notional is split into quarters across all four combinations of ranks 1–2 and 7–8. Returns are averaged, not summed at four times the exposure.

Returns are in basis points so JPY and non-JPY pairs can be combined. One basis point is 0.01%. Annual figures sum trade percentage returns and are not compounded account returns.

Besides the two calendar years, the first and second halves of 2025 were checked. Parameter selection uses 2024 before looking at 2025, and the strength-gap filter below takes its threshold from 2024 only. The extension also shifts a 12-bar holding schedule through all offsets from zero to 11, separating a result tied to one convenient start date from a phase-neutral result.

Strongest versus weakest did not win

Each timeframe contains 24 momentum settings: six lookbacks by four holds. Medians are annual net basis points after recorded spread.

Half the H4 grid was profitable in 2024; all 24 settings lost in 2025. The four daily winners in 2025 were each negative under the same setting in 2024.

Removing spread left only one of 72 settings gross-profitable in both years. H4 with a 10-bar lookback and a 12-bar hold made 359.6 and 29.1 basis points gross. Recorded bid/ask reduced those numbers to +107.2 and −245.1, removing the two-year survivor.

The best 2025 setting failed in 2024

The 2025 momentum leader was D1 with an 80-bar lookback and 24-bar hold, at +883.3 basis points. It lost 720.1 in 2024. The runner-up, D1 20/24, made 857.0 in 2025 after losing 1,670.8 in 2024.

Those rows prove that a profitable setting can be found after opening the test year. They do not provide a setting selected before that year began.

Win rate and payoff at the 14/4 starting point

Here is the hourly 14-bar lookback with a four-bar hold.

The 2025 win rate fell below 40%, and the mean loss was slightly larger than the mean win. Gross performance was already −1,249.1 basis points, so spread cannot carry all the blame.

The two independently reset halves were negative too: −4,323.0 in the first half and −964.7 in the second. The second half was barely positive before spread at +65.4, but could not absorb 1,030.1 basis points of cost.

before spreadafter spreadH1, 14-bar lookback, four-bar hold, 2025

Reversal flips gross direction, not cost

Reversing the same pairs at the same times produced +1,249.1 gross basis points in 2025. The same 4,987.0-bp spread bill left it at −3,737.9 net.

Momentum and reversal gross results are nearly opposite signs. Their transaction costs are not. Trying both sides does not guarantee one net winner; spread creates a region in which both lose.

The five largest 2024 settings all failed in 2025

The five best 2024 momentum settings were carried unchanged into 2025.

Their mean 2025 result was −1,738.0 basis points, with zero profitable settings. Selection should therefore check whether the same condition remains positive in the check year, not whether it merely loses less than neighbouring settings.

Do gap filters, longer holds or reversal rescue it?

A larger strength gap did not predict continuation

We admitted trades only when the strongest-minus-weakest gap exceeded the 75th percentile learned from 2024. The threshold was never fit on 2025.

For H1 14/4, filtering reduced 1,553 trades and −6,236.2 basis points to 430 trades and −2,744.1. Total loss fell because exposure fell, but average return worsened from −4.016 to −6.382 basis points per trade and PF slipped from 0.63 to 0.59.

For H4 10/12, 133 trades and −245.1 became 39 trades and −153.2. Average return fell from −1.843 to −3.927 and PF from 0.94 to 0.91. A more dramatic rank gap was not a continuation filter in these rows.

Longer holds cut turnover but did not repair gross return

These are 2025 hourly means across the six lookbacks.

Longer holds traded less and lost less. Gross return remained negative at every holding-period marginal, so reducing turnover did not create an edge by itself.

Six reversal settings survived both years

Buying the weakest and selling the strongest left 6 of 72 settings profitable in both years. The standout was H4 with a 20-bar lookback and 24-bar hold.

That row was selected after inspecting 576 runs. More importantly, the five best reversal settings selected on 2024 all lost in 2025, averaging −1,745.4 basis points. The test found pockets of short-horizon mean reversion, not a validated instruction to reverse every meter.

Do the second-highest and second-lowest ranks help?

We moved each edge of the rank inward by one place and reran the same 72 settings under five selection methods. “Top two × bottom two” is an equal-weight portfolio of four pairs. The table counts settings that were profitable after spread in both 2024 and 2025.

Moving to the second rank did not rescue continuation: momentum survived in at most two of 72 settings. The weakness was not only a first-versus-eighth outlier problem. The improvement clustered on reversal.

Daily 20/12 reversal survived all five selections

Selling the high-ranked side, buying the low-ranked side and holding for 12 daily bars was profitable in both years under every selection. These first results rebalance every 12 bars from each calendar year's first eligible entry.

We also checked the nine-setting D1 neighbourhood formed by lookbacks 14, 20 and 40 and holds 4, 12 and 24. Daily 20/12 was the only cell in which all five selection methods were profitable in both years. Daily 20/4 had zero; 20/24 had one. This is a concentrated peak, not a broad plateau.

Start phase changes a single schedule materially

A 12-bar hold selects different trades depending on which January session starts the schedule. Across all offsets from zero to 11, the top-two/bottom-two basket ranged from −321.6 to +970.9 basis points in 2024 and from −748.0 to +998.1 in 2025. Choosing the convenient phase would overstate the result.

We therefore divided capital into 12 sleeves, started one sleeve at each daily phase and held each for 12 bars. A sleeve receives one-twelfth of total capital; the four-pair method divides that sleeve equally again. The table shows mean annual net return across the 12 phases, including recorded spread.

20242025D1 20/12 reversal, mean across 12 start phases

Second-versus-eighth had the most single-pair phases profitable in both years. The basket reduced the worst 2025 phase to −748.0 basis points, versus −1,410.1 for second-versus-eighth. The rolling basket made 336.3 basis points in the first half of 2025 and only 31.5 in the second. Two positive calendar years therefore do not establish regime independence.

The candidate rule that remained

The least-fragile procedure inside this sample is:

1. Synchronize daily data for all 28 pairs among the eight currencies.
2. Calculate equal-weight strength over the last 20 bars.
3. Reverse the rank: sell the high side and buy the low side.
4. Hold for 12 bars and refresh one-twelfth of capital each day.
5. Use second-versus-eighth for one pair, or split a sleeve equally across all four top-two/bottom-two pairs.

This condition was positive in both years, but adjacent settings broke and it is not a profit-guaranteeing preset. Financing matters over a roughly 12-session hold and is not in the result. Requiring a strength gap above the 2024 median left the four-pair basket with just seven trades and +1,017.3 basis points in 2025. That sample is too sparse to promote the gap filter into the rule.

Why this is not the same as academic currency momentum

The BIS working paper Currency Momentum Strategies reports a significant winner-minus-loser spread across a broad currency sample. It also finds that transaction costs explain part of the return and discusses limits that make the premium hard to exploit.

That result need not conflict with this test:

• The study forms broad diversified portfolios; the initial rule held one first-versus-eighth pair and the extension reaches only a four-pair top-two/bottom-two basket.
• Academic formation and holding periods are mainly monthly; this grid runs from hourly bars to daily bars over 1–24 bars.
• The study uses a long, broad sample; this test covers eight majors in 2024–2025.

Evidence for “currency momentum” is not evidence that buying the strongest currency over 14 hours and holding it for four hours works. Ranking method, diversification, horizon and cost define the strategy.

What this test supports

1. Strongest-versus-weakest momentum did not survive both years. The after-spread count was 0 of 72 settings.
2. Cost was not the only problem. The H1 14/4 row was already −1,249.1 basis points gross in 2025.
3. Rebalance speed determines the spread bill. Mean cost fell from 15,723.7 to 2,981.4 basis points between one- and 24-bar holds.
4. The five largest 2024 settings did not transfer. All five lost in 2025, averaging −1,738.0 basis points.
5. The extension left daily 20/12 reversal as a candidate. All five rank selections were positive in both years; the phase-neutral four-pair basket made 384.1 and 367.8 basis points.
6. Diversifying currencies and start phases did not guarantee profit. Only eight of 12 basket phases were positive in both years, and financing remains unmeasured.

Related tests

Moving-average cross settings measure time-series momentum inside one pair. Currency strength is different because it compares several currencies at the same timestamp.

RSI periods and 30/70 levels test both continuation and reversal after a recent move. Building a backtest without code shows how to retest the selected pair's entry and exit conditions. The 28-pair ranking itself is a synchronized multi-series calculation and should not be presented as a single-chart condition.

Notes

• The universe contains eight major currencies and their 28 pairs. It excludes emerging-market currencies, metals, equity indices and crypto.
• The window is only 2024–2025 and does not represent long-run currency momentum or every monetary-policy regime.
• Strength is equal-weighted across seven opponents. Trade weights, volatility scaling, carry adjustment and moving-average distance would produce different meters.
• The extension covers ranks 1–2 and 7–8 plus an equal-weight four-pair basket. Broader long-short portfolios and volatility weighting were not tested.
• Exits are fixed holds. Stops, targets, rank-cross exits and trailing exits are outside this grid.
• Recorded bid/ask is included; commission, slippage, financing and size-dependent execution are not.
• Daily 20/12 was also discovered from the 2024–2025 comparison. Start phases and adjacent settings were checked, but 2026 and later remain untouched rather than validated.