The Scale of Market Quakes (SMQ) was developed as a means of objectively measuring the impact of political and economic events and other events, such as large orders; cascades of liquidations; and ubiquitous unbalances between buyers and sellers on financial markets just as the Richter scale does for earthquakes. It measures price displacement on a tick-by-tick basis over a 2 hour time frame.
The SMQ data is computed for 24 currency pairs beginning from December 2004 to date. The SMQ value can be as low as a zero indicating no activity in the market and can go up to a high of a 6 or more, which is rather unlikely. Anything above an SMQ value of 3 is considered to be a moderate impact, while a SMQ value of 4 is a strong impact indicating soaring activity in the markets.
The chart with the two images indicates the activity in the market of the different currencies. On the left chart, the evolution of the SMQ (blue) and the respective price curve (yellow) is shown for a period of three days. The value for the selected time is depicted to the right of the chart, as well as through the two green bars.
On the right chart, the shaded area gives a snapshot of the activity of all currency pairs in relation to the central currency for the selected time. The SMQ value of a particular currency pair is reported as a leg per chart. Together they make up an area.
The tool was developed by the team at Olsen Ltd and is just the first installment of a global early warning system that Olsen Ltd intends to build. For a more detailed description on the workings of the SMQ and on how to use it please look at the description provided on the Olsen Scale page.