As it sounds, the Relative Strength Index (RSI) casts the strength ratio of a financial instrument’s trend compared to other periods, which is usually a value between $ 30 and 70. This indicator is often used as a confirmation indicator with other technical indicators. The RSI is one of the main indicators used in FXLORDS’ Managed Forex Accounts, Forex Trading Signals, and it is among subjects discussed in the Training Course
Ways to use the Relative Strength Index (RSI) chart analysis:
Tops and Bottoms — When RSI rise above 70, it usually indicates that the price is forming a top, and when it falls under 30, it indicates that the price is forming a bottom. As a leading indicator, the RSI usually reaches the maximum value before the actual shape of a top or bottom is formed on the price chart.
Trend continuity — That’s when the RSI exceeds the previous high or falls to a new low.
Confirmations — When the Relative Strength Index (RSI) rise above its previous high, it may have therefore confirmed the upward trend. Similarly, when the Relative Strength Index (RSI) falls below its previous bottom, it may have therefore confirmed the downward trend.
Support and resistance levels — The Relative Strength Index (RSI) sometimes shows support and resistance levels more clearly than the price itself, simply because the RSI shows the strength of a trend, and so, the reaction of the indicator around the support or resistance levels plotted on the indicator’s display will show if the trend is strong enough to break those levels.
Deviation — A deviation is a signal of a nearby change in the current direction and it is the most common way of using this indicator. A Deviation occurs when the price reaches a new high or low price, while the RSI stays below the previous high. In these cases, the price will usually start correcting alongside the trend of the relative strength.