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How Relative Currency Strength is so important in Forex Market?

  • July 2014
  • Posted By Ninoslav

To analyze studies in foreign exchange market a technical indicator is used and this indicator is popularly known as Relative Currency Strength (RCS). It is basically used to determine the charts regarding historical and current happenings of strength and weaknesses of any currency in accordance with closing price of a recent trade.

RCS is named as this because basically its job is to find the relative strength index with mathematical DE-correlation of 28 different cross pairs of currencies. It determines momentum of relative strength of major selected currencies across the globe. That is why it is used in FOREX market across the whole world many times.

Typically it uses a 14 * period time frame and it is measured from a range of 0 to 100 such as RSI where high and low are symbolized at 70 and 30. Most extreme high and low readings are recorded as 80 and 20. Similarly strongest high and low readings are recorded at 90 and 10 which very rarely occur but it indicates the strongest currency utilization.

To determine both entry and exit times, both Relative Currency Strength and absolute currency strength are used as combined. The main rule of this is buying strongest currencies but selling weakest currencies. Sometimes RCS is used to understand pattern trading too. Few examples of basic pattern which are mostly used are trend break, cross, divergences and trend follow etc.

With the help of Relative Currency Strength scalpers take help to count the strength of trend. Currencies which are in strong demand are determined by this way. Such currencies reactions are measured with the help of few instruments which are based upon these signals. How indices have made a large Impact in stock market this can be watched with their movements closely in correlated instruments. Few examples of those are CAD/ OIL or AUD/ GOLD.


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