In this post, you will learn about another common technical indicator that can be used to analyse Forex price charts. If you haven't already, please read our Forex 101 Technical Indicator Basics post.
What is the RSI?
Relative Strength Index, or RSI, is a technical indicator that can signal when a particular market is overbought or oversold. The indicator consists of a simple line chart that scales from 0 to 100. A screen-shot of an RSI indicator is below...
How can the RSI be used in Forex trading?
The RSI can be used as part of a Forex trading strategy and as part of technical analysis. Typically, when the RSI is above 70, this can signal that the particular currency pair is currently overbought and that the currency pair could become bearish. If the RSI is below 30, this can signal that the particular currency pair is oversold and that the currency pair could become bullish. Below is an example of this...
The RSI technical indicator can also be used to predict current market momentum (direction). When the RSI line passes 50 on the scale from above 50, this can signal that current momentum is bearish. When the RSI line passes 50 on the scale from below 50, this can signal that current momentum is bullish. Below is an example of this...
As with all technical indicators, signals are not fully reliable. The RSI indicator should be used as part of your technical analysis, not as the whole of your technical analysis.
Back to Forex 101: Forex Indicator Basics
We have some RSI strategies in our Forex Trading Strategies section! You may also find some RSI trading strategies listed within our Forex trading forum.