Introduction to RSI
RSI stands for relative strength index and this is the only tool or indicator which help traders to put perfect entries. This forex trading strategy helps traders to measure pressure or the overbuying of investors. The formula of RSI is:
RS = Average of x days\’ up closes / Average of x days down closes
The scale of RSI is from 0 to 100 and the signal scales are 30 and 70, it means that the oversold indication level is 30 and overbought level is 70.
RSI chart reading
In the chart below there is sell signal, on the price of 1295 the RSI value is above 70 which means that the investors are overbuying and there are chances of down trend. In the same chart you can see that on the price of 1270 the RSI touched the 30, which means that on this price the investors are overselling and the chances of lift are high.
RSI Forex Trading Strategy
According to some traders the RSI with the combination of Moving average and the trend indicators can give more accurate results but we will tell you the best method to trade with RSI and with the combination of other indicators.
When you are trading with the help of RSI you have to make some changes in the default values of RSI, RSI comes with the default values of 30 and 70 but you have to modify these values and change these values into 20 and 80. Because the change in values can increase the execution accuracy and you will be able to dodge the fake moves of market. RSI is best for the larger time period charts or it’s a best trend indicator for long term traders who follow to 1D charts, Day traders can also trade with the help of this indicator but day traders have to make a strategy or build a combination of indicators which will help RSI to give accurate results on small time period charts.
Combination of indicators:
Support and resistance levels
Moving average lines
These are the combinations which you can use as a strategy to execute a profitable trade. If you have already executed a trade with the help of support and resistance levels then you can trade along with RSI and by combining these two indicators you can find a point on which market always react and after that you can analyze the pressure or the strength of investors on that level.
If you have experience of trading with the MACD strategy, you can apply that method here and you can conform the execution by it.
If you can read or apply the FIBONACCI retracement levels on chart, you can put a perfect entry and you can make some money out of it.
RSI is the trend indicator which can help a day or long term traders by providing them the signals of overbuying and overselling with the help of values. Professional traders use this indicator because it helps them to make the right decision at right time.