Trade Forex Trading

RSI Strategies

Relative Strength Index Strategy

RSI or RSI is one of the most popular/liked forex indicator used in Forex. It is an oscillator forex indicator which oscillates between 0 -100. This a price trend following forex indicator. It shows the strength of the forex trend, values/readings above 50 show a bullish trend while values below 50 indicate bearish Forex trend.

RSI Measures Momentum of a Trend.

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

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

How to Trade Forex with RSI - RSI Strategy: RSI 50 Center Line Crossover Forex Method

RSI - How to Trade FX with RSI Indicator

In the forex example above, when the forex indicator is below 50, the price kept moving in a downwards market trend. The price continues to move down as long as RSI was below 50. When the RSI moved above 50 it showed that the energy had changed from sell to buy and the downward trend had ended.

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

From the forex example above, when the forex 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 forex price trend was generally upwards. As long as RSI does not move to below 50 the current forex trend remains intact. This is the reason the 50 center-line mark is used to demarcate the signal between bullish and bearish forex signals.

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

The RSI period used depends on the forex chart time frame you are using to trade, if you're using day timeframe the 14 period will represent 14 days, while if you use 1H forex chart time frame the 14 period will represent 14 hours. For our forex example we shall use 14 day moving average, but for your trading you can substitute the day period with the chart time frame you are forex trading with.

To Calculate RSI Indicator:

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

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

RSI Centerline: The center line for this forex indicator is 50. A value above 50 implies that the forex market trend is in a bullish phase as average gains are greater and higher than average losses. Values below 50 indicate a bearish phase in the currency market prices are generally closing lower than where they opened.

Overbought and Over-sold Levels: Wilder set the RSI overbought and oversold levels at which the forex market moves are overextended at 70 and 30.

Get More Lessons and Tutorials and Courses:

Forex Malaysia Seminar

Forex Thailand Seminar

Forex Broker