Relative currency strength
Encyclopedia
The Relative currency strength (RCS) is a technical indicator used in the technical analysis
of forex market. 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's based on Relative Strength Index
and mathematical decorrelation
of 28 cross currency pairs.It shows relative strength momentum of selected major currency
. (EUR, GBP, AUD, NZD, 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 gives you entry and exit signals for currency trading.
If X/Y currency pair is in an uptrend, it shows you if it's due to X strength or Y weakness.
On these signals you can choose the most worth pair to trade.
Technical analysis
In finance, technical analysis is security analysis discipline for forecasting the direction of prices through the study of past market data, primarily price and volume. Behavioral economics and quantitative analysis incorporate technical analysis, which being an aspect of active management stands...
of forex market. 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's based on Relative Strength Index
Relative strength index
The Relative Strength Index is a technical indicator used in the technical analysis of financial markets. It is intended to chart the current and historical strength or weakness of a stock or market based on the closing prices of a recent trading period...
and mathematical decorrelation
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 a matched linear filter to reduce the...
of 28 cross currency pairs.It shows relative strength momentum of selected major currency
Currency pair
A currency pair is the 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 or quote currency and the currency that is quoted in relation is called the base...
. (EUR, GBP, AUD, NZD, 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
Absolute currency strength
The Absolute currency strength is a technical indicator used in the technical analysis of forex market.It is intended to chart the current and historical gain or loss of a currency based on the closing prices of a recent trading period.It's based on mathematical decorrelation of 28 cross currency...
indicators gives you 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 you if it's due to X strength or Y weakness.
On these signals you can choose the most worth 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 divergencies.Advantageous for trading strategies
- Most commonly used as combination with Absolute currency strengthAbsolute currency strengthThe Absolute currency strength is a technical indicator used in the technical analysis of forex market.It is intended to chart the current and historical gain or loss of a currency based on the closing prices of a recent trading period.It's based on mathematical decorrelation of 28 cross currency...
- 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 strengthAbsolute currency strengthThe Absolute currency strength is a technical indicator used in the technical analysis of forex market.It is intended to chart the current and historical gain or loss of a currency based on the closing prices of a recent trading period.It's based on mathematical decorrelation of 28 cross currency...
- Currency strengthCurrency strengthCurrency 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, fundamental data, overall economic performance or interest...
- Currency pairCurrency pairA currency pair is the 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 or quote currency and the currency that is quoted in relation is called the base...
- Relative Strength IndexRelative strength indexThe Relative Strength Index is a technical indicator used in the technical analysis of financial markets. It is intended to chart the current and historical strength or weakness of a stock or market based on the closing prices of a recent trading period...
- Forex
- Technical analysisTechnical analysisIn finance, technical analysis is security analysis discipline for forecasting the direction of prices through the study of past market data, primarily price and volume. Behavioral economics and quantitative analysis incorporate technical analysis, which being an aspect of active management stands...