Trade Forex Trading

RSI Trading Strategies

Relative Strength Index Strategy

Relative Strength Index or RSI is one of the most popular/liked indicator used in xauusd. It's an oscillator indicator which oscillates between Zero -100. This a price trend following indicator. It shows the momentum of the trend, readings above 50 show a bullish trend while values below 50 indicate bearish XAUUSD trend.

RSI Calculates Momentum of a Market Trend.

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

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

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

RSI Strategy: 50 Centerline Crossover Method - RSI 50 Centerline Crossover Strategies

RSI - How to Trade with RSI Indicator

In the example 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 indicator was below 50. When the RSI indicator moved above 50 it showed that the momentum had changed from sell to buy & that the downwards trend had ended.

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

From the example revealed above, when the trend was bullish sometimes the RSI would turn downwards but it would not go below 50, this shows that these temporary moves are just retracements because during all these time the price trend was generally move upwards. As long as RSI indicator does not move to below 50 the current trend remains intact. This is the reason the 50 center-line mark is used to demarcate the signal between bullish and bearish signals.

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

The RSI technical indicator period used depends on the chart time frame you're using to trade, if you're using day chart time frame the 14 period will represent 14 days, while if you use 1 hour chart time frame the 14 period will represent 14 hours. For our illustration we shall use 14 day moving average, but for your trading you as a trader can substitute the day period with the chart time frame you are xauusd with.

To Calculate RSI Indicator:

  • The number of the days that the market is up is compared to number of the days that the market is down during a particular given period of time.
  • The numerator in the basic formula is an average of all the xauusd sessions that finished with an upward price change.
  • The denominator is an average of all the down xauusd sessions closes for that period.
  • The average for the down days is calculated as absolute numbers.
  • The Initial RSI is then turned in to an oscillator technical indicator.

Sometimes very big upward or downward movement in price in a single trading session price period may skew the calculation of the RSI average & produce a false signal - whipsaw signal - in the form of a spike.

RSI Center Line: The center-line for this technical indicator is 50. A value above 50 implies that the price trend is in a bullish phase as the average gains are greater than average losses. Values below 50 indicate a bearish phase in the market prices are in general closing lower than where it's that they opened.

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

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