The Relative currency strength (RCS) is a
technical indicator
In technical analysis in finance, a technical indicator is a mathematical calculation based on historic price, volume, or (in the case of futures contracts) open interest information that aims to forecast financial market direction. Technical ind ...
used in the
technical analysis
In finance, technical analysis is an analysis methodology for analysing and forecasting the direction of prices through the study of past market data, primarily price and volume. Behavioral economics and quantitative analysis use many of the sa ...
of
foreign exchange market
The foreign exchange market (Forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines foreign exchange rates for every currency. It includes all as ...
(Forex). It is intended to chart the current and historical strength or weakness of a currency based on the closing prices of a recent trading period. It is based on
Relative Strength Index and mathematical
decorrelation
Decorrelation is a general term for any process that is used to reduce autocorrelation within a signal, or cross-correlation within a set of signals, while preserving other aspects of the signal. A frequently used method of decorrelation is the use ...
of 28 cross currency pairs. It shows relative strength momentum of selected
major currency. (EUR, GBP, AUD, USD, CAD, CHF, JPY)
The RCS is typically used on a 14*period timeframe, measured on a scale from 0 to 100 like RSI, with high and low levels marked at 70 and 30, respectively. Shorter or longer timeframes are used for alternately shorter or longer outlooks. More extreme high and low levels—80 and 20, or 90 and 10—occur less frequently but indicate stronger momentum of currency.
Combination of Relative currency strength and
Absolute currency strength indicators yield entry and exit signals for currency trading.
Basic idea
Indicator basic idea is "buy strong currency and sell weak currency".
If X/Y currency pair is in an uptrend, it shows if it is due to X strength or Y weakness.
On these signals one can choose the most worthy pair to trade.
Signals
You can use Relative currency strength for pattern trading as well, among basic patterns which can be used are: cross, trend break, trend follow, divergencies.
File:Signal-cross.png, Cross
File:Signal-trendbreak.png, Trend-break
File:Signal-divergence.png, Divergence
Indicator
File:RCS-ACS.png, Combination of Relative currency strength and Absolute currency strength
File:RCS.png, Absolute currency strength
Advantageous for trading strategies
* Most commonly used as combination with
Absolute currency strength
* information indicator to realize which currencies are being demanded, this is ideal indicator for trend follow traders
* help for scalpers looking for strength trend (trader can see both absolute and relative strength)
* instrument for correlation/spread traders to see reactions of each currencies on moves in correlated instruments (for example CAD/OIL or AUD/GOLD)
See also
*
Absolute currency strength
*
Currency strength
Currency strength expresses the value of currency. For economists, it is often calculated as purchasing power, while for financial traders, it can be described as an indicator, reflecting many factors related to the currency; for example, fundament ...
*
Currency pair
A currency pair is the dyadic quotation of the relative value of a currency unit against the unit of another currency in the foreign exchange market. The currency that is used as the reference is called the counter currency, quote currency, or ...
*
Relative Strength Index
*
Forex
The foreign exchange market (Forex, FX, or currency market) is a global decentralized or over-the-counter (OTC) market for the trading of currencies. This market determines foreign exchange rates for every currency. It includes all asp ...
*
Technical analysis
In finance, technical analysis is an analysis methodology for analysing and forecasting the direction of prices through the study of past market data, primarily price and volume. Behavioral economics and quantitative analysis use many of the sa ...
References
{{DEFAULTSORT:Relative Currency Strength
Technical indicators