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Relative Strength Index RSI Analysis and RSI Signals

Developed by J. Welles Wilder, explained in the book "New Concepts in Technical Systems".

Relative Strength Index is the most popular trading indicator and it is a momentum oscillator and a trend following trading indicator. RSI compares a currency magnitude of the recent price gains against the magnitude of recent losses price losses & draws this data on a scale of values which ranges between 0-100.

Relative Strength Index measures the momentum of a currency pair; values above 50 signify bullish momentum while values below 50 center-line signify bearish momentum.

RSI Indicator Analysis Trading - RSI Indicator - How to Build RSI Indicator Strategy - Forex RSI Trade Strategies Guide

RSI is drawn as a green line
Horizontal dashed lines are plotted to identifying overbought and oversold levels are i.e. 70/30 levels respectively.

FX Analysis & How to Generate Signals

There are various methods used to trade, these are:

50-level Cross over Signals

Buy trade signal - when the technical indicator crosses above 50 a buy/bullish trading signal is given.
Sell Trading Signal - when the trading indicator crosses below 50 a sell/bearish trading signal is given.

RSI Indicator Buy Sell Signals - RSI Analysis Forex - RSI Indicators

RSI Trading Patterns

Traders can draw trend lines and map out chart patterns on the RSI. The Relative Strength Index often forms patterns such as head & shoulders pattern which might not have formed clearly on the price chart.

Forex Support/Resistance Breakouts

RSI is a leading indicator and 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 & resistance zones.

RSI Swing Failure Setup - RSI Indicator Analysis Forex - RSI Indicator

Swing Failure - Support & Resistance Break-out

Over-bought/Oversold Conditions on Technical Indicator

Overbought levels above 80
Over-sold- levels below 20

These levels can be used to generate FX signals such as when RSI turns up from below 20 after oversold, buy and sell when RSI crosses to below 80 after over-bought, sell. These signals are not suitable for Forex because they are prone to a lot of whipsaws.

Divergence Forex Setups

Divergence trading is one of technical analysis method used to trade reversals of the market trends. There are 4 types of divergences that can be traded with this trading indicator covered in the divergence guide on this site.

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