Relative Strength Index RSI - is another great momentum indicator developed by Welles Wilder. Standard period settings for RSI is 14 periods, which can be applied to any time frame. RSI indicator compares the average of up and down closes for a specific period of time. Opposite for RSI falling below Readings above 70 indicate an overbought market, while readings below 30 forex an oversold market. However, once RSI advances above 70 it is not yet a signal for an immediate Selling, since RSI may stay in overbought area for a long-long time. In fact, when a strong factory develops, readings above 70 are just a beginning of a great upward move; an opposite is true for a downtrend and readings below For example, when RSI goes above 70, Forex traders would prepare to Sell, but the actual trade will take place only when RSI crosses down below Opposite true for an oversold RSI: Forex traders also use 50 level of the RSI indicator, which separates buying forces from selling forces on the market. Certain trading strategies use RSI 50 level to confirm Divergence and Short entries by looking at a positioning of the RSI in relation to its 50 level. RSI indicator has got another handy feature: Forex traders use RSI factory draw trend lines. While RSI's trend line stays intact, it confirms that a trend holds well. With RSI trend lines Forex traders are able to receive a much earlier warning about upcoming trend changes since RSI trend lines witness a breakout few candles earlier than chart trend lines. RSI trend lines are especially useful on large time frames. Another way to exploit RSI is to take advantage of RSI divergence signals. When RSI approaches 70 traders watch for a bearish divergence, which occur when actual RSI readings begin to decline while prices continue climbing up. RSI Divergence suggests that a current momentum is over and traders should look to protect their profits and be ready to trade in the opposite direction. The best way to learn about any indicators is to read original works of their creators. Therefore, forex turn to the book where J. Welles Wilder tells about his research on RSI indicator:. Failure swings above 70 or below 30 are very strong indications of a market reversal. Although divergence does not occur at every turning point, it does occur at most significant turning points. When divergence begins to show up after a good directional move, this is a very strong indication that a turning point is near. Divergence is the single most indicative characteristic of the Relative Strength Index. For calculation Downward Price Changes are taken as positive values. Adding to the subject: RSI is also known to form patterns, such as wedges, triangles, double tops and bottoms, head and shoulders etc. Daily charts are perfect to watch these patterns. RSI breakouts from factory patterns often happen days earlier than price breakouts on the charts, providing an invaluable information to a trader. The advantage a longer default RSI is that it uses a longer time period and thus produces less false signals, however, it will lag more. The shorter period RSI will give the less of a lag when it comes to identifying important turning points. Using default RSI 14 and a shorter RSI 6 in conjunction gives a certain edge in reading chart signals: At times 6 RSI will lead, forex other times it'll go together with 14 RSI, which allows to distinguish stronger signals and filter out least important ones. When RSI approaches 70 traders watch rsi a bearish divergence, which occur when actual RSI readings. I don't think so. A Bullish divergence is formed when RSI is at the bottom and begins to rise, while price keeps making new lows. A Bearish divergence - RSI at the top starting to decline. This is really clear and well explained. It really helped to understand better of RSI, thank you guys. In MT4 you'll do it from Menu: Insert, Indicators, Oscillators, Relative Strength Index. In other platforms it'll take different steps, so just ask your broker for a help or a platform tutorial. Taking your lead I am putting RSI 13 and RSI 5 in the same window box. The cross provides an excellent signal. I had given up on the RSI but, this works really slick. I have developed my strategies using more information from your site than all other sources combined. Even though I have read it all more than once I keep coming back for new inspiration and ideas I didn't think of previously. Thank you very much! I can't say enough about how well you detailed this information into the simple facts and how to use the tools of the trade. Absolute amazing stuff, understand it for the first time as clear as a bell and my account can proof it. Why could I not see it myself earlier on? As rsi we would lie on the grass staring at the clouds, playing a game to see what object a cloud would form, to one the cloudformation would look like a house, to the other an old man, to the next a lion or a mountain. Everytime we had to explain to the others what rsi are seeing and then only would they also see a lion. Thank you so much, my friend. When RSI approaches 70 and above, that's usually an indicator to sell. However, there's one scenario when the RSI divergence 70, 80, or even 90, people should buy. Quick Summary Trading with RSI indicator involves the following signals: Let's review each of these RSI signals below. RSI trend lines RSI indicator has got another handy feature: Trading divergence with RSI indicator Another way to exploit RSI is to take advantage of RSI divergence signals. Welles Wilder tells about his research on RSI indicator: The formula is wrong. The right one is: I have no words to thank you for your well explained lessons Thanks a lot!! My professor asked us a question in class that no one was divergence to answer. His question was why would they buy if the prices increased?
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