Very basically, “buy” signals are considered RSI readings of 30 or less (currency pair is deemed to be oversold) and “sell” signals are considered to be RSI values of 70 or higher (the currency pair is deemed to be overbought). Depending on the technician and price volatility, some various other qualifications and nuances can be incorporated when The RSI momentum indicator signal forex trading online with RSI.
Some History First
Relative Strength Index is a creation of J. Welles Wilder Jr. and first introduced in “New Concepts in Technical Trading Systems” his book.
It is one of the most common technical tools around and draws a vertical scale of 0 to 100.
70% and 30% levels are used as reversal signals. A relative strength index above 70% is deemed to be overbought, and below 30% are considered oversold.
An oversold or overbought condition only implies that there is a high probability of a counter-reaction. It is a sign that there may be able to buy or sell but does not provide the final signal. RSI signals should always be used in combination with The RSI momentum indicator trend-reversal signals offered by the price itself.
Relative Strength Index (RSI) seeks the strength of all upward movement against the strength of all downward movement in this time frame.
The mathematical formula for The RSI momentum indicator is shown below:
RSI = 100 – [100 / (1 + RS)]
RS = average closing day n / n day average of closes down.
The most common parameter for RSI is period 14, although users can choose their favorite period if they wish. It is one of the most popular oscillators that works well in a range-bound market.
The RSI momentum indicator Tops and bottoms
These are indicated when the readings go above 70 (upper) and under 30 (lower). RSI can form structures similar to chart formations. The RSI may create chart formations that may or may not appear on the actual bar chart, e.g., you can see the head and shoulders formation of RSI but not the bar chart.
When The RSI momentum indicator goes above 70 or below 30, this is a strong indication that the Forex market is ready for a reversal.
Support and resistance
It is sometimes apparent that the support or resistance is forming in the RSI, then you can see the bar chart.
Our use of RSI
Our favorite use of The RSI momentum indicator is that the disagreement, as suggested by Wilder himself. When the currency pair you are trading makes a new high and RSI turns down, that is a bearish divergence.
The same is true of bullish divergence. When price makes a new low with the RSI are turning bullish divergence is that, as in 1-hour forex trading online table below:
1 hour The RSI momentum indicator forex trading online scheme
We also want them to dislike the big tops and bottoms. That is to say that if we were in a downtrend for some time as shown in the table above and the price went past 20 for reading the RSI, AND we see divergence, then we are more convinced that the price has bottomed.
We do not want to use RSI as a sole trigger for a new position but to be used in combination with other indicators to help build the image. You will notice that in many cases of disagreement, the currency pair does not like low RSI, the RSI begins to turn up, but security remains down.
We wait for security to make a new low and RSI to come down, but not so low as the previous low, and that is the point of action that can be taken. The fact that RSI did not fall below its previous low, a price that is the point of recognition.
If we break The RSI momentum indicator Forex Trendline or is it projection or achieve some other confirming analysis, then we would enter the trade. For purposes of this illustration, we will use for the rest of Forex Trendline to confirm that the trend towards really changed.
Bear in mind the 1-hour online forex trading chart below:
1-hour forex The RSI momentum indicator trading online scheme
In the forex trading, the online table above has a good set as the currency pair showed oversold conditions and RSI divergence of the price back up and break our Forex Trendline (orange line) in which phase will bring our entry to go long currency pair.
The RSI Momentum Indicator Advanced
A more advanced method is to apply Bollinger Bands on your target and exit strategy for your input. Below is 1-hour forex trading online chart with RSI set at 14, and Bollinger Bands set at the 20th
1-hour forex trading online scheme
Trading Rules (long time):
* Identifying divergence between price and The RSI momentum indicator.
* Confirm oversold conditions by reading below 20 on the RSI.
* Draw Trendline (green line) and enter when price breaks Trendline (point A).
* Exit when the price close above the upper Bollinger Band line (point B).
* Your stop loss will be when the price hits the lower Bollinger Band line after your entry.
* The RSI momentum indicator is a momentum indicator, or oscillator, which measures the relative internal strength of a currency pair (not against another market or index).
* As with all oscillators, RSI can provide early warning signals but should always be used in combination with other indicators.
* Differences are the most important signal provided by RSI.