Relative Strength Index CFD Technical Analysis & RSI CFDs Signals
Developed by J. Welles Wilder, explained in the book "New Concepts in Technical Trading Systems".
RSI is the most popular indicator and it is a momentum oscillator and a cfd trend following indicator. RSI compares a trading cfd price magnitude of the recent cfd price gains against its magnitude of recent losses cfd price losses and draws this data on a scale of values that ranges between 0-100.
RSI measures the momentum of a cfd instrument: 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 identifying over bought & oversold levels are i.e. 70/30 levels respectively.
CFD Technical Analysis and Generating CFDs Signals
There are several techniques used to trade, these are:
50-level Crossover Signals
- Buy signal - when the indicator crosses above the 50 a buy/bullish trading signal is given.
- Sell CFD Signal - when the indicator crosses below 50 a sell/bearish signal is given.
RSI CFDs Chart Patterns
Traders can draw cfd trend lines and map out cfd chart patterns on the RSI indicator. The RSI often forms cfd chart patterns such as head & shoulders pattern which might not have formed clearly on the cfd price chart.
CFD Support/Resistance Breakouts
RSI is a leading indicator and can be used to predict Support/Resistance Breakouts before cfd 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 and Resistance Break out
Overbought/Oversold Conditions on Technical Indicator
- Overbought- levels above 80
- Oversold- levels below 20
These levels can be used to generate cfds trading 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 are not suitable for CFD Trading because they are prone to a lot of fakeouts.
Divergence CFD Setups
Divergence trading is one of the technical analysis method used to trade reversals of the cfd price trends. There are four types of divergences that can be traded with this indicator covered in the divergence tutorial on this web site.
