RSI Technical Indicator

The technical indicator RSI is considered to be the most common technical indicator in the foreign exchange market. It is a swing indicator and is included in the standard packaging of the trading platform.

This indicator has a single line and aims to determine the main points of the current trend and its possible reversal points. RSI compares the absolute value of the price increase and the degree of decline in a foreign exchange currency pair within a certain period of time. The calculated result is displayed as a curve, and the display range can be from 0 to 100%.

This indicator has a single parameter-the period that determines the length of the time interval used in the calculation. The fixed default value for this period is 14. This value can be changed according to the activities that appear in the foreign exchange market. If it is a heavily traded market, the curve of this indicator will often cross the levels 30 and 70%. However, in most cases, this will not be a signal.

To filter out the wrong signal in this case, the period may increase, for example, up to level 21. In this case, it is necessary to shorten the cycle. When the market is calm, the signal will rarely appear and become completely invalid.

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Divergence of RSI evidence

The main trading signal is considered to be the three forks, that is, the difference between the evidence of RSI and the price movement behavior of the currency pair. If there are several rising peaks in the price, and the RSI curve shows two flow maxima on the same cycle on its chart, this will mean a weakening of bullish power, which may lead to a reversal of the current upward trend or cause a time-dependent movement toward In the opposite direction. The opposite is the correct bearish trend.

If the market is at a high value of RSI for a long period of time, it is overbought, so there is a chance of reversal in the opposite direction. The overbought guarantee is given when the indicator reads 70%. In addition, when the foreign exchange market underestimates indicator readings for a long time, the market will be oversold, that is, the price is too low, and the market may improve. This happens when the index values ​​are all lower than 30%.

When the indicator leaves the overbought or oversold zone, it is recommended to enter and exit from the market.

The central area is between these two indicators. When the indicator leaves the overbought or oversold zone, it is recommended to enter and exit from the market. Otherwise, you should avoid trading with this currency pair.

When the RSI is overbought, this indicates that the market has a large number of buying positions. Of course, the sale will begin in the near future. If the indicator breaks down the level 80, the signal will start to appear. At the same time, you can start selling. If the indicator reaches level 20 from bottom to top, it means oversold.

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How to apply RSI live broadcast

The RSI indicator should be applied to:

  • The basic and top analysis of the indicator;
  • Graphic shape analysis on an indicator chart;
  • Support and resistance line analysis can also be used as the level analysis of indicator charts;
  • Analysis of the position of the indicator relative to the midline;
  • Analyze periodic RSI curves through their control levels.

It is necessary to use this indicator together with other tools of technical analysis of the foreign exchange market because it can often give conflicting signals. Prolonged oversold or overbought value, or strong price fluctuations will reduce the effectiveness of this indicator. Therefore, in actual trading strategies, this indicator can only be used after careful preparation.

Trade with RSI on BDSwiss MT4