Technical Learning Forex With Relative Strength Index (RSI)

Relative Strength Index (hereinafter we shall refer to as RSI), has similarities with stochastic in terms of helping to identify overbought and oversold conditions. This indicator was developed by J. Welles Wilder, Jr. and was introduced in 1978. Wilder junior itself is a mechanical engineer who is better known as a technical analyst who gave birth to some of the technical indicators as well known as RSI.

RSI has a value of 0 (zero) to 100 (one hundred). RSI can help you to estimate the state of overbought and oversold. The market is considered oversold if the RSI is below 30 and is considered overbought when the RSI is above 70.

In general RSI is used to search for buy and sell signals, as well as other indicators. Sought sell signal when the RSI has entered the overbought area, on the contrary sought a buy signal when RSI has entered the oversold area.

Confirmation is a sell signal when the RSI dropped from overbought area and are under 70, while the confirmation buy when the RSI is rising from oversold area and is in the top 30.

RSI is not as aggressive as stochastic. RSI includes indicators that rarely generate a signal to buy or sell. Therefore, RSI may not be suitable for an aggressive trader, namely traders who want to trade as much and as often as possible.However, as the RSI rarely generate a signal, usually followed by the appearance of a signal long enough movement. Therefore RSI is suitable for traders who tend to be calm, very patiently waiting RSI signal to make transactions.There are some tips that you can use to use the RSI to anticipate the emergence of fake signal. We call it a "moment six steps RSI".Rules to buy:1. The RSI should be in oversold (below 30).2. Wait until the RSI separated from the oversold area (rising to above 30).3. As the amplifier, make sure there is a bullish candlestick when the RSI separated from the oversold area.4. Wait until the candlestick finish (close).5. Entry (buy) at the opening of the next candlestick.6. Place the stop loss slightly below the last swing low.Illustration of the steps above are as follows:Step 1-3:

Step 4-6:

 

And subsequent events turned out:

Tip: do not place a stop loss just in the last swing low. As a precaution, keep a little below the swing low. As experience and lots of practice, you'll get more familiar with the characteristics of the market so that it can figure out where you should place your stop loss.

Rules for sell:

1. The RSI should be in overbought (above 70).

2. Wait until the RSI separated from the overbought area (down to below 70).

3. As the amplifier, make sure there is a bearish candlestick when the RSI separated from the overbought area.

4. Wait until the candlestick finish (close).

5. Entry (sell) at the opening of the next candelstick.

6. Place the stop loss slightly above the last swing high.

The practice of moves above are as follows:

Step 1-3:

Step 4-6:

and then

Divergence with RSI, why not?

RSI can also recognize when there is divergence. Same way by recognizing the divergence on other indicators such as stochastic and CCI.

Examples bullish RSI divergence using:

The following are examples of bearish divergence with RSI:

Okay, so our discussion of RSI. Practice continues using the demo account, so that you are more refined sensibilities!