Relative Strength Index RSI Analysis and RSI MT5 Indicator
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 oscillator MT5 indicator MT5 indicator and a trend following indicator. RSI compares a forex currency magnitude of the recent price gains against the magnitude of recent losses price losses and draws this data on a scale of values that 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 drawn as a green-line
- Horizontal dashed lines are plotted to identifying overbought & oversold levels are i.e. 70/30 levels respectively.
Forex Analysis and Generating 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 trading signal is given.
- Sell Signal - when the indicator crosses below 50 a sell/bearish signal is given.
RSI Chart Setup Patterns
Traders can draw trendlines & map out chart setups on the RSI indicator. The Relative Strength Index often forms patterns such as head & shoulders pattern which might not have formed clearly on the price chart.
FX Support/Resistance Breakouts
RSI is a leading indicator & can be used to predict Support/Resistance Breakouts 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 FX 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 aren't suitable for forex because they are prone to a lot of whipsaws.
Forex Divergence Trading Setups
Divergence forex trading is one of the analysis method used to trade reversals of the price trends. There are 4 types of divergences that can be traded with this MT5 indicator covered in the divergence tutorial on this web site.
