RSI Relative Strength Index

RSI Relative Strength Index

The RSI indicator owes its name to its acronym in English: Relative Strength Index. It is similar to stochastic as it also identifies conditions of over-purchase or over-sale of the Forex market.

It also uses a scale of 0 to 100. Typically, readings below 20 indicate over-sell and above 80 indicate over-purchase.

[caption id="attachment_630" align="aligncenter" width="259"] RSI Relative Strength Index[/caption]

How to use the RSI?

The RSI can be used as the stochastic. According to the chart above we can see that when the RSI drops below 20, it correctly identifies an over-sell condition. After falling, the price quickly rises again.

[caption id="attachment_631" align="aligncenter" width="144"] RSI Relative Strength Index[/caption]

The Relative Strength Index (RSI) is a very popular tool because I could also identify trend formation.

If you think a trend is forming, quickly look at the RSI and see if it is above or below 50.

If you're looking for a bullish trend, make sure the RSI is above 50.

If you're looking for a possible downtrend, make sure the RSI is below 50.

[caption id="attachment_632" align="aligncenter" width="171"] RSI Relative Strength Index[/caption]

At the beginning of the last chart, we can see how a possible trend was beginning to form. To avoid confusion, we can wait for the RSI to cross 50 points to confirm our trend.

When the relative strength index (RSI) rises above 50 it is a good indicator that an upward trend is indeed being created.

NOTE: This article is not an investment advice. Any references to historical price movements or levels is informational and based on external analysis and we do not warranty that any such movements or levels are likely to reoccur in the future.