Relative Strength Index RSI Technical Analysis and RSI MT5 Indicator
Developed by J. Welles Wilder, explained in the book "New Concepts in Technical Trading Systems".
Relative Strength Index is the most popular indicator and it is a momentum oscillator MT5 indicator MT5 indicator and a forex trend following indicator. RSI compares a forex trading currency magnitude of the recent forex price gains against its magnitude of recent losses forex price losses and draws this data on a scale of values that 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 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 Technical Analysis & 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 FX Trading Chart Patterns
Traders can draw forex trend lines and map out chart patterns on the RSI indicator. The Relative Strength Index often forms chart patterns such as head & shoulders chart pattern which might not have formed clearly on the forex price chart.
Forex Support/Resistance Breakouts
RSI is a leading indicator and can be used to predict Support/Resistance Breakouts before forex price breaks its support/resistance level. RSI uses the swing failure signal to predict when price is about to break support and resistance areas.
Swing Failure - Support & Resistance Break out
Overbought/Oversold Conditions on Indicator
- Overbought- levels above 80
- Oversold- levels below 20
These levels can be used to generate Forex trading 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 are not suitable for forex trading Forex because they are prone to a lot of whipsaws.
Forex Divergence FX Trading Setups
Divergence forex trading is one of the technical analysis method used to trade reversals of the forex 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.
