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What is the Relative Strength Index (RSI)?

What is the Relative Strength Index (RSI)?

The Relative Strength Index (RSI) is one of the most popular and widely used technical analysis indicators. It is possible to know the current market situation of oversold and overbought, and it can also measure momentum. Also, it scaled from 0 to 100Normally.. readings of 30 or less indicate an oversold condition which increases the possibility of prices going up. A region of 70 demonstrates above an oversold condition which increases the risk of price falling. It was developed by a technical analyst named Welles Wilder. In this article, we will explain the RSI and how to use it.

How to trade by Relative Strength Index?

The central signal of the RSI indicator is the identification of the top point of buying and selling. Although a filter system uses when the centre indicator is the trend, it is theoretically possible to try trading only on RSI signals. When the indicator line rises above 70 or below 30, it expresses that the market is in an overbought/oversold state, and we need to wait for the next signal to report a reversal.

For transactions on the RSI opens as follows:

If the indicator line crosses the 70 levels from top to bottom, a sell transaction opens.

If the curve crosses level 30 from bottom to top, a buy transaction opens.

There are many options for closing the deal:

Set the stop loss at the local limits, and the take profit is 2-3 times greater.

Exit on the opposite of the indicator signal.

Stop Loss and Take Profit should be set at the following levels or Fibonacci in this case, the take should not be less than (stop), it is better to refrain from opening trades.

The advantages of using Relative Strength Index:

The RSI has become a widely used indicator in trading forex for a simple reason: it makes life easier for traders looking for profit opportunities:

Simple and easy to read design. Even beginners can use the RSI to identify overbought and oversold conditions.

It helps track the speed of the momentum – not just the movement. Speed ​​is crucial when looking to take advantage of forex price movement. The price trend is one thing, but it does not mean that price movement will continue for any measure of time. The RSI can help you gauge the robustness of that movement based on the current momentum.

You can use the Relative Strength Index (RSI) to open and close positions. While the Relative Strength Index (RSI) offers value in identifying profit opportunities, it determines when to exit a position, thereby increasing your profits.

In Conclusion: 

The RSI indicator is one of the essential indicators of technical analysis. Almost all experts in forex trading agree that it is still helpful and convenient as a provider of trading signals. The success of RSI trading depends directly on the tools that work with it in the complex. In conjunction with the correct indicators, the RSI constitutes an effective system, which in the future sharpened by making changes to the parameters of the tools. Trading in the financial markets involves a high level of risk, following the rules of managing money and fixing the stop loss, knowing that all decisions taken by the trader when working in Forex are his responsibility.

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