Trade Gold Trading

Relative Strength Index RSI Trading Analysis and RSI Signals

Created by J. Welles Wilder, explained in the book "New Concepts in Technical Systems".

Relative Strength Index is the most popular indicator and it is a momentum oscillator and a trend following indicator. RSI compares a currency magnitude of the recent price gains against its magnitude of recent losses price losses & draws this data on a scale of values that ranges between 0-100.

Relative Strength Index measures the momentum of a currency pair; values above 50 signify bullish momentum while values below 50 center-line signify bearish momentum.

• RSI is plotted as a green line
• Horizontal dashed lines are drawn to spotting over bought & oversold levels are i.e. 70/30 levels respectively.

Trading Analysis and Generating Signals

There are several techniques used to trade, these are:

50-level Crossover Signals

• Buy signal - when the indicator crosses above 50 a buy/bullish trading signal is given.
• Sell Signal - when the indicator crosses below 50 a sell/bearish signal is given.

RSI Trading Patterns

Traders can draw trend lines and map out chart patterns on the RSI indicator. The Relative Strength Index often forms chart patterns such as head and shoulders pattern which might not have formed clearly on the price chart.

Forex Support/Resistance Breakouts

RSI is a leading indicator and can be used to predict Support/Resistance Breakouts before price breaks its support/resistance level. RSI uses the swing failure signal to predict when price is about to break support and resistance levels.

Swing Failure - Support & Resistance Break out

Overbought/Oversold Conditions on Indicator

• Overbought- levels above 80
• Oversold- levels below 20

These levels can be used to generate signals such as when RSI turns up from below 20 after oversold, buy and sell when RSI crosses to below 80 after overbought, sell. These signals are not suitable for trading Forex because they are prone to a lot of whipsaws.

Trade Divergence Trade Setups

Divergence trading is one of the technical analysis method used to trade reversals of the price trends. There are 4 types of divergences that can be traded with this indicator covered in the divergence tutorial on this website.