Forex Trading with the RSI Indicator

RSI Indicator
Forex Trading with the RSI Indicator

The relative strength indicator (RSI) is one of the most popular oscillator used by technical traders. Introduced by Welles Wilder in 1978, RSI is used in all financial markets, with huge success.

This oscillator measures the relative changes between higher and lower closing prices. (As with other tools oscillator, RSI serves to identify key points of the market where the price reversal may be imminent.)

The original number of days used by Wilder was 14days, or half a lunar cycle, but is now 10-day period used by traders, which allows for the weekends are more popular these days.
Buy and sell signals

This indicator value trades between the lines of 0 and 100. The most common setting is within the oversold line at 30 and overbought line of 70th RSI-line action touching or exceeding these two zones are warning signs of impending market reversal.

Values above 90% indicate overbought condition, which should trigger selling signal. RSI of less than 10% reflects the oversold condition and buying signal.

Note: As with all technical analysis tools, the RSI is not designed to be an independent signal. It must be used in combination with other technical studies to offer a solid trading signals for traders to enter new trades or protect the profit gained.

Some traders use only numerical values, be wary of false signals a reversal when trading only to extreme levels.