RSI Explanation

Hi Guys!

I'm new to FX and have a ton of queries as you can imagine.

I have a question regarding RSI actually. I know a lot of traders are referring to it. What is it used for? In what kind of strategy is it relevant? Has it anything to do with "momentum"?

Any explanation would be appreciated.

Thanks

RSI is the relative strength index. The strategy is up to you. Basically what it shows is if the currency (or commodity or stock) is oversold or overbought. Basically it tells you that if a currency is overbought, then people are going to start selling. If it's oversold, people will start buying. Basically it shows when momentum changes.

Example: The EUR/USD is ranging and suddenly jumps 50-100 pips. The RSI is going to show overbought basically implying that the currency is not worth that full 50-100 pips and that people will start selling off. Not necessarily true, but that's what it's on there for.

EDIT: I would also recommend checking out investopedia for a more detailed explanation.

There is many RSI article you can have via google. If you looking for RSI trading system you can find it here on Forex Factory.

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RSI divergence

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I second this, I use investopedia.com a lot, especially when I was first starting out. There is a lot of trustworthy articles there, and best is no wait time

Investopedia is a very good source for information. You can also go through the tutorial of babypips.com .



GL

RSI is the relative strength index

it smooths the calculations for RS of an asset.

first find the gain or loss by taking current close - previous close

you have to take a period of N gains and get the average first of the gains
then do the same with the losses. After you have Average of gains for X period and average of losses for X period, you will have to divide

there is where the smoothing comes in, he uses the same smoothing formula as his ATR. Where he takes (the average of 13 previous + current)/ 14 for the RS

to get the calculation for the RSI = 100-(100/1+RS) this will give you the continuous smoothing effect.

now readings above 70 indicate that the markets gains have been out performing the average losses for an extended period of time (this can indicate that mean reversion will occur but it can also indicate a strong upward trend)

reading below 30 indicate a market that has been falling for an extended period of time.


RSI alone can not be profitable because here is the problem=
a contrarian position on a market that has been moving upwards via RSI is essentially the same as seeing an outlier from normal volatility in an attempt to capture the mean reversion, or pull back.

the problem lies when in fact is not an outlier but a strong directional move.

Bollinger Bands and RSI are common technical indicators that are used by numerous people. From amateurs to professional traders! Today, I want to share with you about how to use Bollinger band and RSI. Watch on Youtube and have a look through the e-books.
Bollinger Bands
http://www.youtube.com/watch?v=XmE80...layer_embedded
RSI
http://www.youtube.com/watch?v=5_vQI...layer_embedded

E-book: Just download it. Has only few pages, but it provides full detail about these indicators. Hope it can help

Yeah, we all use RSI at some point, some of us more often than others to gauge whether a currency is overbought or oversold..and that's about it.

Agree. It works well under certain market conditions. Like all tools, one needs to know its strengths and limits.

I have a bit of a love-hate thing with RSI - overbought and oversold readings can be badly wrong in a trending market. But have been getting some good results using RSI recently with a new strategy. Even then though - I have to watch out for trends.

Here is the definition of RSI. http://epitometrading.com/rsi-indicator/

RSI= Relative strength Index, gives you an idea on whether a currency is overbought or not and you can use this to figure out your entry and exit positions and so on..

Using RSI for overbought/oversold signals is very unreliable in a trending market. This is another way to use it (http://www.tradersbulletin.co.uk/?p=512) that I find works better for me.

Read the file.

Thanks for that file, it looks like really interesting stuff. I'm looking forward to studying it.

I use RSI only on 4h charts to look up for divergence