Relative Strength Index Gold Analysis and RSI Trading Signals
Developed by J. Welles Wilder, explained in the book "New Concepts in Technical Systems".
RSI is the most popular indicator and it is a momentum oscillator and a gold trend following indicator. RSI compares a price magnitude of the recent price gains against the magnitude of recent losses price losses and plots this data on a scale of values that ranges between 0-100.
RSI measures the momentum of gold; values above 50 signify bullish momentum while values below 50 center-line signify bearish momentum.
- RSI is drawn as a green-line
- Horizontal dashed lines are drawn to spotting overbought and oversold levels are i.e. 70/30 levels respectively.
Gold Trading Analysis and How to Generate Signals
There are several methods used to trade, these are:
50-level Crossover Signals
- Buy signal - when the indicator crosses above 50 a buy/bullish signal is given.
- Sell Trading Signal - when the indicator crosses below 50 a sell/bearish signal is given.
RSI Setups
Traders can draw trend lines and map out chart patterns on the RSI indicator. The RSI often forms chart patterns such as head & shoulders chart pattern which might not have formed clearly on the price chart.
Gold Support/Resistance Breakouts
RSI is a leading indicator & can be used to predict Support/Resistance Break Outs before price breaks its support/resistance level. RSI uses the swing failure signal to predict when the price is about to break support and resistance areas.
Swing Failure - Support and Resistance Break out
Overbought/Oversold Conditions on Indicator
- Overbought- levels above 80
- Oversold- levels below 20
These levels can be used to generate gold signals such as when RSI turns up from below 20 after oversold, buy & sell when RSI crosses to below 80 after overbought, sell. These signals aren't suitable for Gold because they're prone to a lot of whipsaws.
Divergence Trade Setups
Divergence trading is one of technical analysis method used to trade reversals of the price trends. There are four types of divergences that can be traded with this indicator covered in the divergence tutorial on this web site.
