RSI Strategy – How to Use the RSI in Forex Trading

When using RSI, most traders use moving averages from either of the following two time-frames for their plots:

There is a good chance that good trading setting will be posted on the forum by users of the Automated Indicator. 

This is how this strategy works: However, before you start trading divergence setups, there are a few more points which we need to discuss further.

Combining RSI, Full Stochastic Oscillator and SMA 

Although no trading system can solely rely on RSI indicator, using it in combination with other tools and proper technical analysis can bring a new edge to your Forex trading.

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Please try again later. Back Forex Chart patterns used to analyze price charts can be used on the Relative Strength Index RSI Forex Trend line breaks of RSI can predict important turning points in a currency pair Forex Trend line breaks of RSI are an easy and systematic way to enter and exit the market Traditionally, traders have relied on the Relative Strength Index RSI to measure the strength of a currency pair by tracking the changes in its closing price.

They look to get long a currency pair as RSI moves above the horizontal 30 reference line. On the other hand, traders look to sell a currency pair after RSI moves above the horizontal 70 reference line and back below it. However, an overlooked method of using RSI is the use of trendlines directly on the oscillator itself in much the same way that they are used on price charts.

Connecting rising swing lows in an uptrend or lower swing highs in a downtrend, traders can find excellent trading opportunities with strong risk to reward setups. Because RSI measures the surge in closing prices, when RSI changes direction and either breaks above or below a trend line, a significant move in price can result. Because the signals are leading rather than lagging, stops can be placed relatively close to the entry point.

This allows for a good risk to reward trading opportunity. Check out the following screenshot. We have used an hourly chart for the example above to show that it too can generate reliable signals, although whipsaws will be much more frequent compared to the daily time frame.

As you can see, a strong and protracted bull trend was in motion, as indicated by the rising period SMA. At bar 1 RSI was deep in the oversold area, while the Full Stochastic performed a bullish crossover, generating a long entry signal.

Thus, we will enter above the high of bar 1, or at 1. Our stop-loss is placed several pips below the previous swing low at 1. We remain on the market until the stochastic enters the opposite extreme area in our case becomes overbought.

At bar 2 the market became overbought and we exited our position at at its close, thus at 1. However, because this makes up for a too small risk-reward ratio, we might use a different management strategy to ensure better results. We can instead remain on the market as the stochastic becomes overbought and immediately trail our stop to breakeven.

 

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The Sydney Morning Herald

Relative Strength Index, or RSI, is a popular indicator developed by a technical analyst named J. Welles Wilder. RSI is similar to the stochastic in that it identifies overbought and oversold conditions in the market. The relative strength index (RSI) is most commonly used to indicate temporary overbought or oversold conditions in a market. An intraday forex trading strategy can be devised to take advantage of indications from the RSI that a market is overextended and therefore likely to retrace.

One of the indicators that technical analysis is very reliant on is RSI – the Relative Strength Index Indicator. RSI indicator trading has been increasingly popular due to its powerful formula and the possible use of RSI divergence. The positive effects of employing RSI indicators can be evidenced by performance of almost any experienced . How to Read a RSI Chart The RSI with a period setting of “8” is presented on the bottom portion of the above “30 Minute” chart for the “GBP/USD” currency pair. In the example above, the “blue” line is the RSI, while the “red” line, added as an additional option on the “Metatrader 4” platform, represents an exponential moving average for eight periods.

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