Relative Strength Index RSI

Relative Strength Index (RSI)
Welles Wilder created the Relative Strength Index (RSI), in order to identify when the market is bearing extreme situation. Knowing whether market is overselling or overbuying, an investor can make better investments.
RSI shows the important data in numbers from 0 to 100. The closer to the zero <30 means that the territory is oversold, and 70> means it’s overbought.

RSI example – RSI trend line can show nice breakout entry point for trader:

RSI in trading means identifying extreme situations. If the index is under 30 that means the territory is oversold. That further means that pressure of selling is high and it is likely to see technical correction. Since everybody eventually sold their assets, it means there are not many sellers, so they can raise prices up again. If the indicator turns up as well, this means a good chance to buy.
Even though the RSI identifies extremes, it doesn’t mean that a trader has to be one, and as soon as the index shows value below 30 that buying should be engaged. No extreme actions, please.
It is uncertain for how long the index can stay below 30, so other factors have to be taken into consideration. But, the indication for buying-button to be turned on is when the RSI gets above the oversold territory.
Chart shows explained situations.
Overbought territory is alerted by RSI showing value above 70. This situation means that pressure for buying is high and therefore the prices will reach their upper limits. Market is left with fewer buyers and sellers start growing their number. Just as opposite to oversold territory, when the RSI starts going down, that signals the beginning of good time to sell.
Of course, when the index reaches values above 70, it doesn’t mean that you should start selling. When it starts going down, presuming other information about the market were taken care of, selling is good to go. (Chart)

Another usage of the RSI is for confirmation of the market’s trend. A way to confirm the trend is to draw lines on the indicator that represent trend – a trend line. If the line remains steady, that means the trend holds well. These lines are very considerable to observe on larger time frames. (Chart)
RSI trend line enables earlier acknowledgment of trend changes, as the line often warns a possible breakout a bit sooner than chart trend lines.
Usage of “level 50” for additional confirming chart data about the trend means watching the RSI line moving across RSI value of 50. If it goes over 50, uptrend is in question. If it goes below 50, that marks the downtrend. This is for confirmation of chart data.
(Referring to the chart below, we insert a 50 line in the RSI indicator section (see the red line).)

Another useful usage of RSI indicator is for identifying divergence signals.
Divergence represents the situation when the RSI indicator doesn’t move according to the market’s direction. This informs us of reversing of the trend which gives us a chance of entering a trade. It is possible to identify divergence as two occurrences; bullish and bearish.
Bullish divergence will occur when a downtrend market’s prices go low further, but the indicator doesn’t go lower, but begins to go up again. This signals the change of the trend, and means a good time to buy.
Bearish divergence is the moment we see the market has uptrend, and prices are breaking high values, but the RSI stops going higher and starts going back. This signals a change of a trend, and a good time to sell.
After the RSI rise to 30, it is good to wait a bullish divergence, which is to wait for the RSI to start rising slowly while the prices had already been in a declining phase – then buy. And vice versa, when the RSI reaches 70 from higher value, bearish divergence might occur when the RSI starts to fall at the time of prices in their way up. Bearish – sell.
In short, divergence stands for change in a trend. It represents a good moment to start trading in opposite direction.

Trend trading and volatility

Forex seasonality is the trend used for trades to enable moving again and again at reasonably predictable forms. Some guides will indicate the monthly trends that occur during the year. A thing that will intrigue the Forex traders is an easily noticeable comparable certainty, which happens most of the time if the series of that happening occurs; it is an opportunity to hope for in a repetitive manner of the trade, in particular.


There is a new expression that people use, regarding trends; it is the trend is your friend.
Let’s see now how to determine trends by using the price charts and technical analysis. First a must know information is that whether the trend will become a popular method that all levels of traders would start using it. More experienced traders will most of the times look for strong trends in order to take more from them.
In example, if the market rises in a tough trend, and you see your methods do you well, it doesn’t mean that it is a good method for any trend, because each trend requires its particular method to be dealt with.

The Forex Trends & Intra-Week Propensities

The usage of Forex market statistics is to set the highs and the lows for the week at the start and by the end of the trading week. If the market is consistent and up trending, if it’s low during Mondays, there is a chance for it to be on hold by Friday with high probability of the difference to be true. In addition, the major European currencies and North-American might just see higher price moves by the end of the week.

Appreciating Volatility in Currency Trading
Volatility is one of the main things that initiates tracking in trading with the currencies. It is actually the risk related to the number of the possibilities in a certain currency pair. As the level of the volatility is higher, the probability of currency pairs with dramatic outcome is.

Volatility is probably not the best element to consider in trading currencies, because sometimes there can be a situation that high volatility goes up, and turns down in really rapid sequence. But the thing that makes volatility important factor, not the most important, is the fact that effectiveness possibility of a volatile exchange trade is rather big. Basically, the higher the market volatility, the chance for getting revenue from it is bigger.

Speaking in technical language, volatility reveals expected irregularities in alternations per period of time. It can display risk involved in a trade with a certain currency pair at a certain period of time. It also can approximate the level of income a trader can win.