There are a couple of technical indicators in forex called Absolute Currency Strength (ACS) and Relative Currency Strength (RCS). I'm looking for information about how they are calculated. Wikipedia has an entry on each, but is vague. Deeper web searches don't turn up much. A few people have made their own versions, but that's not what I'm looking for. I've already programmed currency decorrelation. Wikipedia almost sounds like ACS is the percent distance away from a moving average of the decorrelation? And RCS is an RSI of the decorrelation? Thanks for the help.
Forum Moderator: While this discussion is about technical indicators to forex, this discussion might want to be moved to the forex forum given the results I found below. I'll leave it to your discression. ---------- In further researching my above questions, I wasn't too thrilled with what I found. In quick summary, most of the strength indicators do some kind of weak currency decorrelation and then apply some kind of questionable strength formula to it. Taking these 2 generalizations, I wrote my own for Sierra Chart that are much stronger using already established indicators. I have no financial ties to Sierra Chart. I only have a developer's account. My code is open sourced and free. Currency Decorrelation (source code for both is here): https://www.sierrachart.com/SupportBoard.php?ThreadID=20669 My version fixes problems not addressed by others. Currency Strength instructions and discussion: https://www.sierrachart.com/SupportBoard.php?ThreadID=22025 I'll attach a few screen shots for those curious about what it looks like. These are daily bars (user configurable). Currencies are set to 1.0 300 bars back (user configurable). This is an excerpt from my Currency Strength instructions that answers my questions from my initial post. ----- Theory and Observations on Currency Strength. In researching this program, I've run across many things. These have directly influenced on how this program was written. * Problems: * All currency strength programs try to mimic currency decorrelation in some way. Most of them do it poorly. Currency decorrelation must be done to extract directional price information. This is why I use my Currency Decorrelation program as the data source. * Once currency decorrelation is done, other programs tend to mimic Stochastic or RSI in some way to show relative strength. Some of their implementations are OK, most others are lacking. Some are closed source black boxes you have to put your faith in. * None of the other currency strength programs I've seen account for price reversals or over bought/sold regions. * The 'number only' indicators won't easily tell you if the current value is strengthening or weakening (obviously no graph). If the numbers are going against the strength and weakness columns, this will give you a false signal. * Other currency strength programs often contradict each other. It's hard to figure out why with the closed source versions. Some indicators give a contrary signal to a currency that is moving in a clear direction. Many of those programs have disappeared or are no longer supported. * By the time the other programs indicate 'super' strength and a 'great' trade, the currencies are probably in an over bought/sold region and will likely reverse. * Some other programs try to turn this into a trading system with great promises and poor results. Some tout 'price cross currency points' where one currency in the pair crosses above/below the other. While those sort of work, they often give false and late signals. They fail to take into account all the other currencies that include this base and counter pair. Derived indicators crossing suffer the same problems for the same reasons. There is an extremely high degree of relativity. The same is true for the programs that provide binary signals. By design they are weighted more towards accuracy (>50%), but they are far from 100% accurate. These are closer to gambling than short term investing. * Many of the other programs have fixed time frames and are unsuitable for strength indication outside of those time frames. * My Solution: * The proper way to trade isn't blindly following some numbers but checking each currency's decorrelated chart, the strength graphs, and matching the strong against the weak. If you want to break out the decorrelated currency to a separate chart for easier viewing, use the overlay study as the main price graph and add your favorite indicators accordingly. * On the decorrelated currency graph AND the currency pair graph, pay close attention to SAR lines, trend lines, moving averages, Bollinger bands, and chart patterns. Wave counters also pay close attention to Fibonacci lines. Pay attention to higher time frames for overall trend direction. This is how we address the issues of trend reversals and over bought/sold regions. It's the same way as using a normal price graph. If there's a major news event and the currency reverses, the graphs will show it. A number only indicator will not. * There really isn't an official industry wide standard for showing currency strength. That's why I didn't reinvent the wheel in my program. That's why I use what we all know: RSI, CCI, rate of change, momentum, etc. Nearly every indicator I include is an industry standard (or easy to explain) and is trivial to research how it works. Many have very clear over bought/sold regions. These won't disappear or lose support when the programmer gets bored. You are also not locked into the single custom indicator used by the other programs. If you're really desperate and I'm not around, you could extend this program with the indicator you want since this is open sourced and well documented. If you're less desperate, Sierra Chart has ways to assemble a new multi-line graph in a Chart Region manually. It may be more tedious from an end user's point of view, but it is still quite viable. * Since my currency strength program is based on standard indicators, it can watch multiple time frames at once with no artificial limitations. Watching a higher time frame is useful for determining overall trend directions. * The primary limitations of my currency strength program are those of Sierra Chart... which aren't very many. Be warned that as a 'barf on the screen' class indicator, adding too many instances may drive you batty... but that's more of a user limitation. ... Supported Calculations and Comments (if any). I don't personally use all these indicators, but Sierra Chart supports them, and they were easy to integrate. Having many options is a good thing. * RSI. Relative Strength Index. * CCI. Commodity Channel Index. * ROC%. Rate Of Change by Percent. * Momentum. * MACD. This one can be a bit confusing without the trigger line and histogram. I recommend first running a standalone MACD in a separate Chart Region with the same settings and matching it with one of the currency strength lines. This will give you a better understanding of the line movement. * MACD Histogram. * Slope. * Difference From Primary. With default settings, the white line in Currency Decorrelation is the first and primary currency decorrelated. With this calculation, I make the white line flat and subtract the differences from each decorrelated currency turning them into a mathematical distance that gets plotted in the strength window. If the white line is your home currency, this will show the other currencies moving towards, away, or remaining flat in a potential trade. Examples. In the decorrelation window, if the white line moves parallel to a colored line, that will show up as flat in the strength window (a bad trade). In the decorrelation window, if the white line is moving up faster than a colored line, that colored line will be shown slowly approaching the white line in the strength window (a mediocre trade). If the white line and a colored line are both converging together in the decorrelation window, that will show that colored line moving quickly towards the white line in the strength window (a good trade). Similar with both moving away (also a good trade). Avoid trading currencies that run almost always parallel to the white line in the strength window. These will not be moving in a currency pair graph. A colored line above/below the white line only shows short term strength/weakness of a currency. It is highly relative and not an overly accurate strength gauge (the main move likely being already finished). Often the far away lines from the white line will reverse and come back depending on the overall chart pattern (which is why it's important to chart carefully all currencies involved in your trades; instead of converging, the currency may continue to diverge and would make a good opposite trade). If you're trading multiple currencies other than your home currency (like synthetic pairs), look for currencies that move opposite of each other in the strength window. The ones that move parallel to each other are too correlated to each other and will not make good trades. * Average Range. ATR requires bars for its calculation. This version is similar but is an average of the distance between 2 points on the decorrelated currency line. Use this to show which currencies are moving and volatility (similar to ATR's function). * Awesome Oscillator. * Dispersion. * Linear Regression. * Standard Deviation. * Standard Error. * TRIX. * Vertical Horizontal Filter. ---------- Some of these screen shots are barf class indicators. I keep the screen scale the same for clarity. In actual usage, these would be zoomed in more. RSI: Average Range: Distance From Primary: TRIX: