RSI - Relative Strength Index

Forex Indicators

• Bollinger Bands
• Fibonacci Retracement
• MACD
• Moving Average
• Exponential Moving Average
• Simple Moving Average
• RSI (Relative Strength Index)
• Stochastic

The RSI indicator is a widely used forex indicator in the forex trading business. It is an acronym for the words Relative Strength Index.

The RSI is a type of oscillator indicator which generally means it is a Technical Analysis indicator that fluctuates above and below a line in the center.

They may also have an upper and lower band which point out oversold and overbought market conditions which is similar to the Bollinger Bands forex indicator.

An exception to an oscillator indicator would be the MACD which does not have an upper and lower band present.

So the RSI is what is known as a banded oscillator and it is the most popular type of banded oscillator used in technical forex trading.

Simply put, the RSI is a technical indicator that measures momentum of a particular instrument as well as pointing out extreme overbought and oversold conditions.

The RSI accomplishes this by comparing the size of recent gains of a financial instrument to the size of its recent losses. The results are plotted as a line that fluctuates from a value ranging from zero to a hundred. Bands are placed at the values 70 and 30.

Should the RSI indicator reach 70, this means conditions are overbought. Conversely, should it reach 30, market conditions are oversold. The center line is at 50.

There are several different ways that traders use the RSI in their trading strategy. The first method is using the indicator to identfy oversold and overbought market conditions.

When RSI levels reach 70 or 30, traders begin looking for reversals in which they can enter a trade.

The second way trader use RSI is known as RSI divergence. If the indicator is trending in a direction opposite that of the price, this could be an indication that momentum is dying and could signal a trend reversal.

The thrid way traders use the indicator is through a method known as the RSI crossover. This method is not the most reliable.

It is simple to implement. Should the RSI cross above the 50 line, enter a long trade. In reverse, if the RSI dips below the 50 line, enter a short trade.

In choppy market conditions the RSI cross is hugely unreliable and can inflict severe losses on your account.