How to Build Your Own Currency Index Using TradingView
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How to Build Your Own Currency Index Using TradingView
Creating a custom currency index allows forex traders to track specific currency baskets and identify unique trading opportunities that standard indices might miss. Whether you want to build your own dollar index or track emerging market currencies, TradingView makes this process straightforward and powerful.
Watch the Full Tutorial
The good news is that building a custom currency index is actually quite simple to do. But before we show you how to do it, let's start with the reasons why you would want to do something like this in the first place.
Why Create a Custom Currency Index?
As you know, the dollar index (DXY) is what we use as our broad-based dollar index. In our prior video called "Finding the Perfect Dollar Index," which you can find in the video library, we showed that the difference between the dollar index and some of the other indexes out there are very negligible in the bigger picture. So we like to just stick to the dollar index to track the dollar.
The DXY's Main Limitation
The biggest flaw with the dollar index is that it's very heavily weighted towards the euro. The euro makes up almost sixty percent of the dollar index at 57.6%. So, for many traders, the dollar index (DXY) is essentially just an inverse of the euro due to that weighting, which makes it less accurate as a true dollar measure.
However, it's still more than what we need for our analysis purposes.
When to Build a Custom Index
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.
- Emerging Market Analysis: Build an index using major emerging market currencies versus the US dollar to identify relative strength and weakness
- Regional Currency Baskets: Compare specific currencies versus a basket of regional peers to spot catch-up opportunities
- Custom Weighting: Create your own dollar index with different currency weightings that better reflect your trading focus
Creating a Custom Index on TradingView
To create your custom currency index is actually very simple. Here's the step-by-step process:
Step 1: Open TradingView and Search for Symbols
- Navigate to TradingView and open the search symbol bar
- Select the currencies you want to include in your index
- Make sure you are selecting the correct base and quote currency layout
Step 2: Adjust Currency Pairs for Consistency
Ensure consistency in the base and quote currencies. For example, if you're creating a dollar index, convert pairs to have the dollar consistently as the base or quote currency.
Example: If you use EUR/USD, GBP/USD, and AUD/USD, but also want to include USD/CAD, you need to convert USD/CAD to CAD/USD to maintain consistency in your formula.
Step 3: Build the Index Formula
- Combine your selected currency pairs using asterisks (*) to denote multiplication
- Example: For a major currency index, your formula might look like: EURUSD*GBPUSD*AUDUSD*...
- Ensure you've adjusted pairs like USD/CAD to CAD/USD where necessary
Step 4: Input the Formula in TradingView
- You can either type the formula directly into the TradingView search bar or prepare it in a document and paste it
- Copy and paste your prepared formula, then press enter to view your custom index
Step 5: Adjust the Scale for Better Comparison
Invert the scale if necessary to match the viewing perspective of standard indices like the DXY. This can make your custom index visually comparable to existing indices.
Example: Building an Emerging Market Currency Index
Here's a practical example of how to build a custom index for comparing the US dollar against emerging market currencies:
Select Your Currencies
Choose emerging market currency pairs such as:
- USD/CNY (US Dollar / Chinese Yuan)
- USD/MXN (US Dollar / Mexican Peso)
- USD/ZAR (US Dollar / South African Rand)
- USD/RUB (US Dollar / Russian Ruble)
Build and Input the Formula
Ensure consistency in your base and quote currencies, then combine them:
Formula: USDCNY*USDMXN*USDZAR*USDRUB*...
Copy and paste this formula into TradingView to create your custom emerging market currency index.
Adjust and Compare
- Adjust the scale as needed for a clear comparison
- Add other relevant indices for comparison, such as the dollar index (DXY)
- See how your custom index performs against established benchmarks
Visual Comparison and Practical Application
Real-World Trading Example
During 2020, emerging market currencies like the Chinese yuan, Mexican peso, and South African rand were on an absolute tear versus the dollar. However, due to President Erdogan's influence on monetary policy in Turkey, the Turkish lira kept losing momentum and ground versus the dollar despite the flood of inflows into emerging market currencies.
By creating a custom index, you can visually compare the performance of a basket of emerging market currencies against the dollar versus the Turkish lira to identify potential for catch-up opportunities.
Leveraging Economic Calendar Insights
To enhance your trading strategies further, consider utilizing our professional economic calendar. It offers comprehensive alerts and detailed analyses that are essential for tracking major economic events and their impacts on various currency pairs.
By integrating these insights with your custom indices, you can make more informed and strategic trading decisions.
Key Takeaways
- Creating a custom currency index on TradingView is straightforward and allows for more tailored analysis
- Custom indices help you build baskets that better reflect specific currency performance you want to track
- This approach is particularly useful for identifying trends and catch-up opportunities not apparent in standard indices
- Always ensure consistency in base/quote currencies when building your formula for accurate results