Relative Strength Index

Relative Strength Index

Relative Strength Index, or RSI, is one of the most popular technical indicators among traders. It was developed by J. Welles Wilder in 1978 to measure the speed and the change of price movements. The indicator also helps to determine the overbought/oversold state of the market in order to buy low and sell high.

How to implement RSI

To add the RSI to a chart, click “Insert” – “Indicators” – “Oscillators” – and you will see the "Relative Strength Index".

RSI indicator in Metatrader

By default, MetaTrader will offer you to have “14” as the number of periods. You can change this parameter if you want to. Short-term traders normally use 9-period RSI, while those who prefer longer-term trades choose 25-period RSI. All in all, the smaller the period, the more fluctuations the indicator will make.

How to interpret Relative Strength Index

The readings of the indicator fluctuate between 0 and 100. You can also add a middle line at 50. If the RSI is above this point, momentum is considered up and there’s more sense to look for opportunities to buy. When the RSI drops below 50, it’s a sign of a new bearish market trend, so consider opening sell trades.

The market is overbought or oversold

Like other oscillators, the RSI helps to tell when the asset is overbought or oversold. For the RSI, you need to watch the levels of 70 and 30. If the RSI rises above 70 bound, it means that the market is overbought and may correct down. If the RSI falls below the 30 line – the asset is oversold and may retrace to higher levels.

RSI indicator candlestick chart

Notice, however, that this approach is not suitable for trading in strong trends when the RSI may stay overbought or oversold for long periods of time. If you have evidence that there’s a strong trend in the market, consider selling when RSI is oversold in a downtrend, and buying when RSI is overbought in an uptrend.

RSI is oversold in a downtrend

All in all, the quality of RSI signals increases when you follow only those signals that are in the direction of the trend when the indicator leaves critical levels. For example, you can buy during an uptrend when RSI gets above 30.

The market reversal

Moreover, the divergence between RSI and price may warn of the market reversal. When the new high of the price is not confirmed by the new high in the RSI, it’s a bearish divergence, which is a negative signal. When the price forms a lower low but the minimum of RSI is higher than the previous one, it’s a divergence in favor of bulls.

RSI warns of the market reversal

The RSI is often used in combination with another oscillator, the MACD. While the RSI measures price change in relation to recent price highs and lows, the MACD measures the relationship between two EMAs. Together the RSI and the MACD represent a powerful combo.

Conclusion

A competent trader should know what the RSI is and how to use it. Make sure that your analysis isn’t built solely on RSI but comprises the study of price action as well as other technical indicators. Remember that the signals of the Relative Strength Index are most reliable when they conform to the long-term trend.

Latest news

All eyes on AUD

Australian Private Capital Expenditure will be out on Thursday at 2:30 MT time!

Market is crazy after Biden’s transition

Oil jumped to March high, stocks are heading to record highs, while the US dollar is on the back foot.

Wednesday is full of US reports

News geeks get ready for the chain of US reports, which starts at 15:30 MT time on November 25!

Frequently asked questions

  • How to get the Trade 100 bonus?

    Boost your trading skills with free $100 from FBS. To activate this option, open a Trade 100 bonus account with $100 in it. Use the money during 30 days of active trading and trade five lots.  If you succeed, you can get your profit of $100. It is a win-win offer! Not only do you get a chance to profit, but you can also test the real markets and train your FX skills. 

  • How to start trading?

    If you are 18+ years old, you can join FBS and begin your FX journey. To trade, you need a brokerage account and sufficient knowledge on how assets behave in the financial markets. Start with studying the basics with our free educational materials and creating an FBS account. You may want to test the environment with virtual money with a Demo account. Once you are ready, enter the real market and trade to succeed.

  • How to open an FBS account?

    Click the ‘Open account’ button on our website and proceed to the Personal Area. Before you can start trading, pass a profile verification. Confirm your email and phone number, get your ID verified. This procedure guarantees the safety of your funds and identity. Once you are done with all the checks, go to the preferred trading platform, and start trading. 

  • How to withdraw the money you earned with FBS?

    The procedure is very straightforward.  Go to the Withdrawal page on the website or the Finances section of the FBS Personal Area and access Withdrawal. You can get the earned money via the same payment system that you used for depositing. In case you funded the account via various methods, withdraw your profit via the same methods in the ratio according to the deposited sums.

Deposit with your local payment systems

Learn more

Data collection notice

FBS maintains a record of your data to run this website. By pressing the “Accept” button, you agree to our Privacy policy.

Callback

A manager will call you shortly.

Change number

Your request is accepted.

A manager will call you shortly.

Next callback request for this phone number
will be available in 00:30:00

If you have an urgent issue please contact us via
Live chat

Internal error. Please try again later

Don’t waste your time – keep track of how NFP affects the US dollar and profit!

Beginner Forex book

Beginner Forex book will guide you through the world of trading.

Beginner Forex book

The most important things to start trading
Enter your e-mail, and we will send you a free Beginner Forex book

Thank you!

We've emailed a special link to your e-mail.
Click the link to confirm your address and get Beginner Forex book for free.

You are using an older version of your browser.

Update it to the latest version or try another one for a safer, more comfortable and productive trading experience.

Safari Chrome Firefox Opera