Trade Gold Trading

RSI Trading Strategies

RSI Indicator Strategy

RSI or RSI is one of the most popular indicator used in gold trading. It's an oscillator which oscillates between 0 -100. This a market trend following indicator. It indicates the power of the market trend, values above 50 reflect a bullish trend while values below 50 show bearish market trend.

RSI Indicator Measures Momentum of a Trend.

The center-line for the RSI is 50 indicator, cross-over of the centerline indicate shifts from bullish to bearish trend & vice versa.

Above 50, the buyers have greater momentum than the sellers and price on the trading chart will keep moving up as long as this RSI stays above 50.

Below 50, the sellers have greater momentum than the buyers and price on the trading chart will keep going downwards as long as RSI stays below 50.

RSI Strategy - 50 Center Line Crossover Gold Method - How to Use RSI Center Line Crossover Signals

RSI Indicator - How to Trade Gold with RSI Indicator

In the illustration above, when the technical indicator is below 50, the price kept moving in a downwards trend. The price continues to move down as long as RSI was below 50. When the RSI moved above 50 it showed that the force had changed from sell to buy & the downwards trend had ended.

When the RSI moved to above 50 the price started to move upward and the trend changed from bearish to bullish. The chart price continued to move upwards and the RSI remained above 50 afterwards.

From the illustration above, when the trend was bullish sometimes the RSI would turn downwards but it wouldn't move or go below the 50 center mark, this shows that these are just temporary moves - or are just price retracements this is because during all these times the price trend of the market quantitavely generally kept moving upwards. As long as the RSI doesn't move to below 50 the current trend remains intact. This is the reason the 50 centerline mark is used to demarcate the signal between bullish and bearish trading signals.

The RSI uses 14 day period as the default period, this is the period recommended by J Welles Wilders when he introduced it. Other oftenly used periods used by traders are the 9 & 25 day moving average.

RSI period used depends on the chart timeframe you are using to trade, if you're using day gold chart timeframe the 14 period will represent 14 days, while if you use H1 chart timeframe the 14 period will represent 14 hours. For our example illustration we shall use 14 day moving average, but for your you can substitute the day period with the chart timeframe you are gold trading with.

To Calculate RSI Indicator:

  • The number of days that a market is up compared & analyzed to the No. of days that the market is down in a particular given period of time.
  • The numerator in the basic formula is an average of all the gold sessions that finished with an upward price change.
  • The denominator is an average of all the down gold sessions closes for that period.
  • The average for the down days are calculated as absolute numbers.
  • The Initial RSI is then turned in to an oscillator trading indicator.

Sometimes very large up or down movement in price in a single gold trading session price period may skew the calculation of the RSI average and produce a false signal - whipsaw signal - in the form of a spike.

RSI Center Line: The centerline for this indicator is 50. A value above 50 implies that the price trend is in a bullish phase as the average gains are higher than average losses. Values below 50 indicate a bearish phase in the market prices are generally closing lower than where they opened.

Overbought and Over-sold Levels: Wilder set the RSI overbought and over-sold levels at which the market moves are over-extended at 70 & 30.

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