RSI Indicator

 The Relative Strength Index is classified as a momentum oscillator and was developed by Welles Wilder in his 1978 book, "New Concepts in Technical Trading Systems"

 

RSI at a Glance

  • Name: RSI Oscillator
  • Usage: Determines Overbought/Oversold Markets
  • Trading Signals: Signals via the Divergences between RSI and Price Chart Slopes
  • Timeframes: From 5 min up to 1 month
  • Standard Settings: 14 periods
  • Crucial Levels: RSI below 30 indicates an oversold market and above 70 indicates an overbought market

 

The Relative Strength Index (RSI) is a very popular technical analysis tool measuring the magnitude of a price movement and aiming to identify Overbought/Oversold Markets. RSI can be proved a reliable technical indicator for day-traders. It is better to combine RSI with an additional indicator in order to be sure about the continuation or the reversal of the master trend.

 

Technical Behavior:

■ When the price of a financial asset is trading in an uptrend and RSI crosses from below 30 to above 30 it is considered as a strong buy signal (call option).

■ When the price of a financial asset is trading in a downtrend and RSI crosses from above 70 to below 70 it is considered as a strong sell signal (put option).

■ In general RSI below 15 indicates a solid oversold market and RSI above 84 indicates a very strong overbought market.

 

Important Notes:

-RSI oscillates between the values of zero (0) and one hundred (100)

-The RSI actually calculates the recent closes relative to previous closes in order to determine if the momentum of the price is accelerating or slowing.

-RSI can be used for trading any financial market, and especially for trading the Foreign Exchange

-As concerns Forex traders, RSI is very accurate on the 5 minutes chart (M5)

-RSI can be effectively combined with MACD

-RSI can be used for determining entry and exit point

The Relative Strength Index is classified as a momentum oscillator and was developed by Welles Wilder

 

Confirming RSI in Multiple Timeframes

Day-traders can confirm RSI signals in multiple timeframes. For example, if RSI is signaling a reversal in the 5-minute chart, confirmation can derive from the 15 minute, 30 minute and 1-hour charts. Traders must be sure that the oscillator is moving in the same direction on all charts. RSI signals are more powerful when they have confirmed also in the next candle (RSI continues to point in the same direction).

 

 

RSI Divergence

When the price of a financial asset rises to a new recent high, and at the same time RSI does not point a new high then we have a divergence.

■ The existence of a divergence in combination with RSI readings below 30 or above 70 can generate an even more powerful trading signal.

 

Calculating RSI

This is the RSI formula:

                                                                  100

Relative Strength Index = 100 - ----------------------------------------

                                                1 + Average Gain / Average Loss

 

For standard settings (14 periods):

-1st Average Gain = Sum of Gains over the last 14 periods / 14

-1st Average Loss = Sum of Losses over the last 14 periods / 14

 

Related Links:

Top/Flop RSI Readings on a daily basis

 

MORE ON CARRYTRADER

■ COMPARE PROVIDERS

Forex Brokers for Day Traders

Brokers for Carry Traders

Automated Forex Systems

       
■ INDICATORS

» Ichimoku Kinko Hyo

» MACD

» Bollinger Bands

» Parabolic SAR » Ichimoku Kinko Hyo » Pivot Points » Relative Strength Index
■ CURRENCY PAIRS » EURUSD » GBPUSD » USDJPY » EURGBP » AUDUSD » NZDUSD » USDCAD

 

RSI Indicator for Forex Traders

CarryTrader.com

Trading Currencies

Success in Currency Trading comes when experience meets perfect information...

Trading the Forex Market

Focus constantly on improving your trading process and money will flow naturally:

» Compare Forex Brokers

» Compare Systems

» Forex Currency Pairs

Trading Rebates

Joining a trading rebate plan means making money from your trading volumes...

Contact us to Join Free Forex Rebate Plans..

» Contact CarryTrader.com

Trade Systems

Trade the Global Markets using State-of-the-Art Technology...

Trade Systems and Tools

» Automated Forex Systems

» Trading Tools

» Technical Analysis

Trading Tips

Sharpen your Trading Skills by taking the advice of successful Forex Traders...

Forex Trading Tips

» Tips from Famous Traders

» Contrarian Trading

» General Forex Trading Tips

Foreign Exchange

The Foreign Exchange Market is the largest Financial Market in the world with daily volumes of more than 4 trillion USD. When trading Forex you need a reliable and high-regulated Forex broker and a trading strategy that works:

(i) Introduction to Forex Trading

(ii) Forex Brokers for Traders

(iii) Major Currency Pairs

(iv) Automated Forex Systems

Global Markets

Trading the Financial Markets requires a perfect understanding of how demand and supply shift from time to time. Equities tend to follow bullish cycles lasting 7-9 years, and after, bearish cycles lasting 3-4 years. Energies tend to follow annual time patterns while Precious Metals tend to follow longer time cycles:

(i) Gold Trading

(ii) Crude Oil Trading

(iii) Rebate Plans

Learning

If you are a trader, learning is a non-stop process. CarryTrader offers a wide variety of educational resources including trade tools, techniques, and strategies:

(i) Currency Indices

(ii) Famous Investors

(iii) Technical Analysis

(iv) Brokers for Carry Traders

Go to top