Relative Strength Index RSI MT4 Indicator and RSI Trade Signals
Developed by J. Welles Wilder, explained in the book "New Concepts in Technical Systems".
Relative Strength Index is the most popular indicator and it is a momentum MT4 Indicator and a trend following indicator. RSI compares a trading currency magnitude of the recent price gains against the magnitude of recent losses price losses & plots this data on a scale of values which ranges between 0-100.
RSI measures the momentum of a currency pair; values above 50 signify bullish momentum while values below 50 center-line signify bearish momentum.
- RSI is plotted as a green line
- Horizontal dashed lines are plotted to identifying overbought and oversold levels are i.e. 70/30 levels respectively.
MT4 Indicator and How to Generate Trade Signals
There are several methods used to trade, these are:
50-level Cross over Signals
- Buy signal - when the indicator crosses above 50 a buy/bullish trading signal is given.
- Sell Signal - when the indicator crosses below 50 a sell/bearish signal is given.
RSI Chart Setups
Traders can draw trend lines & map out patterns on the RSI indicator. The Relative Strength Index often forms patterns such as head & shoulders chart pattern which may 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 areas.
Swing Failure - Support and Resistance Break out
Overbought/Oversold Conditions on Indicator
- Overbought- levels above 80
- Oversold- levels below 20
These levels can be used to generate signals such as when RSI turns up from below 20 after oversold, buy and sell when RSI crosses to below 80 after overbought, sell. These signals aren't suitable for trading Forex because they are prone to a lot of whipsaws.
Divergence Trade Setups
Divergence trading is one of MT4 Indicator method used to trade reversals of the price trends. There are 4 types of divergences that can be traded with this indicator covered in the divergence guide on this website.
