Relative currency strength

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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.
Contents [hide]
1 Basic idea
2 Signals
3 Indicator
4 Advantageous for trading strategies
5 See also
6 References
7 External links
[edit]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.
[edit]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.

Cross



Trend-break



Divergence

[edit]Indicator


Combination of Relative currency strength and Absolute currency strength



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)

What is Traded?

The simple answer is MONEY.

Because you're not buying anything physical, this kind of trading can be confusing.

Think of buying a currency as buying a share in a particular country, kinda like buying stocks of a company. The price of the currency is a direct reflection of what the market thinks about the current and future health of the Japanese economy.

When you buy, say, the Japanese yen, you are basically buying a "share" in the Japanese economy. You are betting that the Japanese economy is doing well, and will even get better as time goes. Once you sell those "shares" back to the market, hopefully, you will end up with a profit.

In general, the exchange rate of a currency versus other currencies is a reflection of the condition of that country's economy, compared to other countries' economies.

By the time you graduate from this School of Pipsology, you'll be eager to start working with currencies.




Major Currencies

Symbol Country Currency Nickname
USD United States Dollar Buck
EUR Euro zone members Euro Fiber
JPY Japan Yen Yen
GBP Great Britain Pound Cable
CHF Switzerland Franc Swissy
CAD Canada Dollar Loonie
AUD Australia Dollar Aussie
NZD New Zealand Dollar Kiwi
Currency symbols always have three letters, where the first two letters identify the name of the country and the third letter identifies the name of that country's currency.

Take NZD for instance. NZ stands for New Zealand, while D stands for dollar. Easy enough, right?

The currencies included in the chart above are called the "majors" because they are the most widely traded ones.

We'd also like to let you know that "buck" isn't the only nickname for USD.

There's also: greenbacks, bones, benjis, benjamins, cheddar, paper, loot, scrilla, cheese, bread, moolah, dead presidents, and cash money.

So, if you wanted to say, "I have to go to work now."

Instead, you could say, "Yo, I gotta bounce! Gotta make them benjis son!"

Or if you wanted to say, "I have lots of money. Let's go to the shopping mall in the evening."

Instead, why not say, ""Yo, I gots mad scrilla! Let's go rock that mall later."

Did you also know that in Peru, a nickname for the U.S. dollar is Coco, which is a pet name for Jorge (George in Spanish), a reference to the portrait of George Washington on the $1 note?