RSI Indicator

Trading Forex with the RSI Indicator

The Relative Strength Indicator (RSI) is one of the most popular oscillators used by technical traders. Introduced by Welles Wilder in 1978, the RSI are used in all Financial markets with tremendous success.

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

The original number of days used by Wilder was 14days, or half a lunar cycle, but currently a 10-day period are used by traders, that allows for weekends are more popular these days.

BUY AND SELL SIGNALS

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

Values above 90% indicate an overbought condition, which should trigger a selling signal. an RSI under 10% reflects an oversold condition and a buying signal.

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

Some traders use only the numerical values, be cautious of false reversal signals when trading solely on the extreme levels.