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    G5-T6 How To Use RSI

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    The Relative Strength Index (RSI) is an indicator that identifies overbought and oversold conditions in the market. It is scaled from 0 to 100, with readings below 30 indicating an oversold market and above 70 indicating an overbought market. Traders use RSI to identify potential reversals. They also look for crossovers of the centerline at 50, with a rising crossover signaling an increasing trend and falling crossover signaling a decreasing trend. RSI can help traders confirm trends by checking that the RSI is above 50 for an uptrend or below 50 for a downtrend.

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    G5-T6 How To Use RSI

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    The Relative Strength Index (RSI) is an indicator that identifies overbought and oversold conditions in the market. It is scaled from 0 to 100, with readings below 30 indicating an oversold market and above 70 indicating an overbought market. Traders use RSI to identify potential reversals. They also look for crossovers of the centerline at 50, with a rising crossover signaling an increasing trend and falling crossover signaling a decreasing trend. RSI can help traders confirm trends by checking that the RSI is above 50 for an uptrend or below 50 for a downtrend.

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    G5-T6 How to Use RSI

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    The Relative Strength Index (RSI) is an indicator that identifies overbought and oversold conditions in the market. It is scaled from 0 to 100, with readings below 30 indicating an oversold market and above 70 indicating an overbought market. Traders use RSI to identify potential reversals. They also look for crossovers of the centerline at 50, with a rising crossover signaling an increasing trend and falling crossover signaling a decreasing trend. RSI can help traders confirm trends by checking that the RSI is above 50 for an uptrend or below 50 for a downtrend.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    140 views4 pages

    G5-T6 How To Use RSI

    Uploaded by

    The Shit
    The Relative Strength Index (RSI) is an indicator that identifies overbought and oversold conditions in the market. It is scaled from 0 to 100, with readings below 30 indicating an oversold market and above 70 indicating an overbought market. Traders use RSI to identify potential reversals. They also look for crossovers of the centerline at 50, with a rising crossover signaling an increasing trend and falling crossover signaling a decreasing trend. RSI can help traders confirm trends by checking that the RSI is above 50 for an uptrend or below 50 for a downtrend.

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    © All Rights Reserved
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    Download as pdf or txt
    of 4

    How to Use RSI (Relative Strength Index)

    Relative Strength Index, or RSI, is a popular indicator developed by a technical


    analyst named J. Welles Wilder, that helps traders evaluate the strength of the current
    market.

    RSI is similar to Stochastic in that it identifies overbought and oversold conditions in


    the market.

    It is also scaled from 0 to 100.


    Typically, readings of 30 or lower indicate oversold market conditions and an increase
    in the possibility of price strengthening (going up).

    Some traders interpret that an oversold currency pair is an indication that the falling
    trend is likely to reverse, which means it’s an opportunity to buy.

    Readings of 70 or higher indicate overbought conditions and an increase in


    the possibility of price weakening (going down).

    Some traders interpret that an overbought currency pair is an indication that the rising
    trend is likely to reverse, which means it’s an opportunity to sell.

    1
    In addition to the overbought and oversold indicators mentioned above, traders who
    use the Relative Strength Index (RSI) indicator also look for centerline crossovers.

    A movement from below the centerline (50) to above indicates a rising trend.

    A rising centerline crossover occurs when the RSI value crosses ABOVE the 50 line
    on the scale, moving towards the 70 line. This indicates the market trend is increasing
    in strength, and is seen as a bullish signal until the RSI approaches the 70 line.

    A movement from above the centerline (50) to below indicates a falling trend.

    A falling centerline crossover occurs when the RSI value crosses BELOW the 50 line
    on the scale, moving towards the 30 line. This indicates the market trend is weakening
    in strength, and is seen as a bearish signal until the RSI approaches the 30 line.

    How to Trade Using RSI


    RSI can be used just like the Stochastic indicator.

    2
    We can use it to pick potential tops and bottoms depending on whether the market is
    overbought or oversold.

    Below is a 4-hour chart of EUR/USD.

    EUR/USD had been dropping the week, falling about 400 pips over the course of two
    weeks.

    On June 7, it was already trading below the 1.2000 handle.


    However, RSI dropped below 30, signaling that there might be no more sellers left in
    the market and that the move could be over.

    Price then reversed and headed back up over the next couple of weeks.

    Determining the Trend using RSI


    RSI is a very popular tool because it can also be used to confirm trend formations.
    If you think a trend is forming, take a quick look at the RSI and look at whether it is
    above or below 50.

    3
    If you are looking at a possible UPTREND, then make sure the RSI is above 50.

    If you are looking at a possible DOWNTREND, then make sure the RSI is below 50.

    At the beginning of the chart above, we can see that a possible downtrend was
    forming.

    To avoid fakeouts, we can wait for RSI to cross below 50 to confirm our trend.

    Sure enough, as RSI passes below 50, it is a good confirmation that a downtrend has
    actually formed.

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