Relative Strength Index Commodity Trading Technical Analysis and RSI Trading Signals
Created by J. Welles Wilder, described in the book "New Concepts in Technical Trading Systems".
RSI is the most popular indicator & it is a momentum oscillator and a commodity trend following indicator. RSI compares a commodity price magnitude of the recent commodity price gains against its magnitude of recent losses commodity price losses & draws this data on a scale of values that ranges between 0-100.
RSI measures the momentum of commodity; 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 over bought and oversold levels are i.e. 70/30 levels respectively.
Commodity Trading Technical Analysis & How to Generate Trading 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 Commodity Signal - when the indicator crosses below 50 a sell/bearish signal is given.
RSI Commodity Trading Chart Patterns
Traders can draw commodity trend lines & map out commodities chart patterns on the RSI indicator. The RSI often forms commodities patterns such as head & shoulders chart pattern which might not have formed clearly on the commodity price chart.
Commodity Trading Support/Resistance Break outs
RSI is a leading indicator & can be used to predict Support/Resistance Breakouts before commodity price breaks its support/resistance level. RSI uses the swing failure signal to predict when price is about to break resistance and support regions.
Swing Failure - Support & Resistance Breakout
Overbought/Oversold Conditions on Indicator
- Overbought- levels above 80
- Oversold- levels below 20
These levels can be used to generate commodity 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 Commodity Trading because they are prone to a lot of fakeouts.
Divergence Commodity Trading Setups
Divergence trading is one of the technical analysis method used to trade reversals of the commodity price trends. There are four types of divergences that can be traded with this indicator covered in the divergence tutorial on this web site.
