RSI is one of the oldest Forex indicators.
This indicator is one of the most widely used indicators in technical analysis.
In this post, we are going to teach you everything you need to know about RSI indicator.
It is interesting to know that it is one of the most widely used Forex indicators.
RSI indicator is fully popular in the worldwide reviews of the best Forex indicators.
RSI Indicator Overview
RSI is the abbreviation for the word Relative Strength Index.
This indicator shows the price reversal.
We will use this indicator to determine the levels of price reversals in the market.
RSI indicator is mostly used to determine the price reversal area or to predict and alarm it to us.
This indicator is categorized as a momentum oscillator.
RSI indicator shows market power as well as purchasing power of buyers and selling power of sellers.
That’s why we call it the Relative Strength Index.
One of the most popular and most famous forex indicators is the RSI indicator.
This indicator is very comprehensive and popular.
According to the data obtained from our studies, this popularity is not accidental, since RSI is very important in spotting buy or sell levels.
RSI is illustrated as an indicator shown below the main price chart.
In the past, it was difficult to calculate RSI indicator using its formula, but today, as far as few clicks, this indicator will be displayed on your chart.
RSI indicator is a price oscillator and it works by calculating the average prices at intervals, the most commonly used range of this indicator is a period of 14 days, but each analyst can change it according to his needs and his preference.
How to determine the time interval and sensitivity of RSI indicator?
In the settings of this indicator, smaller the time frame we set, more sensitive the indicator is to the price changes.
And on the other hand more volatility in the market, more buy and sell signals.
In fact, this increases the error rate of the issued signals of the RSI indicator.
This kind of setting is more suitable for analysts who are interested in short-term trading.
Another point to note is that the author and designer of this indicator himself suggested a period of 14 days and 14 weeks for this indicator.
In the RSI indicator settings, two levels are scaled from 0 to 100 and the market fluctuates between these two levels.
Technical analysts and speculators in financial markets, both stock market and Forex market Select two levels, 30 and 70, as trusted levels.
In this type of selection, level 30 indicates oversold zone and of course also a level of support is probable.
We will see the reverse of prices as the market continues to move.
Technical analysts also believe that level 70 represents that purchases are at extreme and hence it will form a resistance level.
At this level, we expect the price action to stop and the price to decrease.
Technical analysts consider another level, that is 50, as a trusted or middle level.
And if the RSI indicator fluctuates between 20 and 80 or 10 and 90, there is a strong possibility of a reversal.
What is RSI Sensitivity?
- RSI indicator
Look at the image above.
As you can see in the picture above, in RSI indicator when the indicator is close to the range of 20 the market has had a strong reversal and the trend has been reversed.
Take a look at the image below
- RSI Indicator Training
In the picture above, as you can see, two points have been spotted that the market is approaching the range of 80 and then the price has changed the trend with a swing.
Taking the Trend with RSI
If you search the keyword “Best Forex Indicator” in google, you will definitely face results like “working with RSI Indicator” or “learning RSI Indicator on the trend”.
You can also take a trend with the indicator or RSI oscillator.
Draw a trend line for swings drawn by RSI, and you can check the buy and sell signals when it breaks and then trade in the direction of the market.
In the process of taking the trend with RSI, it is possible to achieve good profits with a reasonable risk.
- RSI Indicator Trending
As you can see, after RSI approached 80, by drawing the trend line, and after breaking the trend line you can open a position in the direction of the new trend and make profit.
The point that needs to be noted is that we don’t enter the market with just once touching an area in RSI indicator or the slightest sign of breakout.
we have to consider certain factors to enter the market. For example, taking the trend using RSI indicator can be a trading method to enter the market.
But to exit, we need to consider other factors which we will address in a separate detailed post.
Market Analysis with RSI Indicator and Support and Resistance levels
If you are familiar with the rules for determining the levels of support and resistance in the RSI indicator, you can easily spot points of support and resistance levels.
As you can see in the image below, we connect the points that were the highs in the RSI indicator, and We were able to identify a resistance area.
As you can see, the market price has reacted to the resistance level and has fallen to the bottom of this region again.
You can use the same procedure to determine support levels too. All you need to do is to connect the lows in RSI.
Note that stronger the support and resistance levels in the RSI are broken, the breakout has a higher validity and we can enter the market more confidently.
- RSI Resistance Indicator
How to spot the Divergence with RSI indicator?
According to most technical analysts who use the RSI indicator, the divergence that occurs between the RSI and the price.
Divergence is more important when RSI is higher than 70 or lower than 30.
These divergences are considered a very serious warning and a special attention should be done to them.
This divergence is very important and it will indicate the reversal of the price.
You should note that when the trend is upward and we are witnessing a divergence between RSI indicator and the price, we will most likely see a reversal and a price decline in the near future.
If we are at the end of a downtrend and a divergence starts to form between RSI indicator and price, the probability of reversal in the trend and a price increase in the chart will be very high.
Important Note: we may also see a divergence between RSI and price chart in the specified RSI levels (At levels below 70 and above 30).
But this kind of divergence is less important and we do not take it too seriously.
Indicators are Trend Followers!
Continuing RSI indicator topic, we feel necessary to mention a few points.
When googling, with the keyword of the best Forex indicator, we encounter posts and reviews most of whom not mentioning that the Forex indicator is not trend follower.
As a financial market analyst, you should pay full attention to the fact that the indicator follows the trend and indicators such as RSI have many capabilities Whether in detecting trend reversal or in detecting trend continuation.
They cannot solely be used. This means that when a signal appears, it cannot be taken seriously. we should consider it only as a warning to find the right trading signal to enter the market.
you should use a complete separate strategy with multiple filters to enter the market.
So the RSI indicator is used only as a warning and as a signal to filter.
Frequently Asked Questions
Question: What is a Forex Indicator?
Answer: The Forex Indicator is an assistant tool for Forex market analysts and traders.
Question: How does RSI indicator work?
Answer: As we explained in this post, this indicator is a default indicator in MetaTrader, which has a large number of fans and is mostly used to detect divergence.
If you want to know more about this indicator, make sure to read this post.
Question: Is there any Forex Expert based on RSI indicator?
Answer: Yes, many experts in the Forex Expert section are based on this indicator.
Question: Is the RSI indicator free? What about RSI indicator training?
Answer: Yes, this indicator is a free of charge and the training how to work with it is also free.
We are happy in this post, we have provided it to you!