US Dollar Index represents the strength of the US Dollars so that traders can decide whether they are going to buy or sell USD against other currencies. This indicator closely monitors the US Index and applies a crossover formula to determine the trend status of the US Dollars. It’s signal demonstration process looks simple and suitable for the newbie traders.
US Dollar Index can be applied to trade any USD currency pairs like EURUSD, GBPUSD, AUDUSD etc. Furthermore, this indicator is a good fit for all sorts of timeframe charts available within the MT4 trading platform.
US Dollar Index Overview
Once you’re done with the installation of the Index at the MT4 terminal, your trading chart will appear like the following image:
US Dollar Index Anatomy
US Dollar Index uses a 3-band crossover formula for determining the strength of the US Dollar. DXY moves above both 20SMA & 40SMA are considered as the bullish crossover signal thus represents buy signal for USD against other currencies. On the other hand, DXY moves below 20 & 40SMA signal the bearish crossover and indicates to sell USD in exchange of other currencies. This indicator can be added to any trend-following trading strategy for enhancing the trading performances.
Also Read: MA 3 Color Indicator
US Dollar Index: Trading Rules
Buy against USD
- USD Index plots the bearish crossover signal
- A bullish bar forms at the same time
- Buy triggers at the break of the respective signaling bar’s high by the following price candles
- Set stop loss below the current swing low of the market
- Exit long/take profit whenever DXY moves above the 20SMA
Sell against USD
- USD Index plots the bullish crossover signal
- A bearish bar forms at the same time
- Sell triggers at the break of the respective signaling bar’s low by the following price candles
- Set stop loss above the current swing high of the market
- Exit short/take profit whenever DXY moves below the 20SMA