The relative strength index (RSI) is most commonly used to indicate temporarily overbought or oversold conditions in a market. An intraday forex trading strategy can be devised to take advantage of indications from the RSI that a market is overextended and therefore likely to retrace.
Table of contents
- hedge binary option call spread.
- The RSI Indicator Explained.
- Relative Strength Index: How to Trade Using the RSI Indicator | Action Forex.
- stock options or cash?
The MFI is a momentum indicator that measures the flow of money into and out of a security over a specified period of time. Rate of Change ROC. Technical analysis focuses on market action — specifically, volume and price. Technical analysis is only one approach to analyzing stocks. When considering which stocks to buy or sell, you should use the approach that you're most comfortable with. As with all your investments, you must make your own determination as to whether an investment in any particular security or securities is right for you based on your investment objectives, risk tolerance, and financial situation.
Past performance is no guarantee of future results. Skip to Main Content. Search fidelity. Investment Products. Sign up to our newsletter in order to receive our exclusive bonus offers and regular updates via email. Last update: 12 May Related Articles. Momentum Oscillator in Forex.
How to use the Momentum Oscillator in Forex The Momentum oscillator is highly regarded for the accuracy of the signals provided, and it is one in Trade Forex with CCI. Was the information useful? Don't miss out on great trading opportunities Check HF Markets now to start benefiting today. Wide range of tradable assets Highly attractive spreads Regulated by trusted institutions Best broker for traders looking to diversify their portfolio Get started. Get the latest Forex updates now!
Relative strength index
I would like to subscribe to the TopRatedForexBrokers newsletter and hereby give my consent to receive exclusive bonus offers and regular updates via email. No thanks, maybe later. Trade Now Review. Alpari International. XM Group. HF Markets.
The most popular uses of RSI include:. A widely use of the RSI is for identifying when a currency pair or another financial instrument is overbought or oversold. The usual values of the RSI used for this are 30, which indicates an oversold area, and 70, which indicates an overbought area. If the price moved strongly up in the recent periods, the RSI will react with a higher value.
The presumption behind this is that a quick jump in price is usually not sustainable and will eventually result in a correction move down. Therefore, if the value of the RSI is 70 or more, it is considered an overbought area and traders should expect a drop in the price. Similarly, a quick drop in the price will move the value of the RSI lower into the area of oversold conditions. In this case, it the RSI shows 30 or lower, traders should be prepared for a possible correction move upside. As the RSI is a momentum indicator, it can also often produce fake signals. Therefore, an additional confirmation regarding the direction change should be utilized.
One of the popular ways of opening positions in case of overbought and oversold areas, is to let the RSI go above 70, and then wait for the value to break below 70 again to open a short position. In case of oversold areas, wait for the indicator to go below 30 and then to break above 30 again, for a buy signal. This is required because the RSI can remain in overbought and oversold areas for a long time if the currency pair is forming a new up or downtrend.
In the chart above, the blue arrows show possible signals for opening positions. Following the mentioned rules, on the first blue arrow the RSI went above 70 and returned below a short time after, creating a sell signal which resulted in a nice drop in price. The second arrow shows a fake signal, where the price continued to move lower.
The third and fourth arrows point to a buy and sell signal, and the price reacted accordingly, creating a profitable trade opportunity. The stop-loss levels in this case would be placed on the previous swing highs for short, and swing lows for long positions. This situation signals that the momentum behind the price movement is slowing down, and a possible change in price direction may be ahead. A bearish divergence appears when the price is rising, but the RSI is falling in value. It shows that buying momentum behind the trend is slowing.
The opposite situation creates a bullish divergence , where the price is falling but the RSI is rising. This signals that the selling pressure has lost power and a possible trend reversal might occur. The following charts show how to trade a bearish and bullish divergence. To find a bullish divergence, look for higher highs on the RSI and lower lows on the price chart. In this case, a confirmation for opening a long position should be used, like for example candlestick patterns or confluence with another timeframe.
The stop-loss level should be places just below the lower low on the price chart. The following chart shows an RSI bearish divergence.
Navigation menu
The price made a higher high, compared to the RSI which made a lower low , thus creating a bearish divergence. On simple rule of thumb to identify these divergences exactly, is to imagine a bull and a bear. A bearish divergence is connecting two highs on the RSI, one being the higher high and the second being the lower high, and is plotted on the above the RSI as if a bear moves the RSI lower with its clutches. A bullish divergence is plotted below the RSI, connecting a low and the next higher low as if a bull pulls the RSI higher with its horns.
Relative Strength Index in Forex | An FX RSI guide
In the following screenshot, I am going to show you a bearish divergence. As you can see on the chart, the second peak is higher than the first one. At the same time, there is a divergence between the price chart and the RSI indicator.