Relative Strength Index

The relative strength Index or RSI is one of the common Forex indicators that can help you make decisions when trading the market. As the name implies, the RSI is a relative measure of the strength of the market at any given time. Pretty profound stuff, right? While it is this simple, there's also a little more to it than that. Read on to find out what the RSI is and how you can use it to help your Forex charting efforts.

Accessing RSI

To access this indicator, you will need to open up a Forex chart on your Metatrader platform. Then go up to "Insert" and then "Indicators."

relative strength index

After clicking on "Indicators" go to to "Oscillators" and finally to "Relative Strength Index." At that point, a box will pop up that will give you some options. You can change how the oscillator shows up on your chart and what information it shows.

Most of the time, you'll simply want to hit "Ok" and put it on your chart. Once you do this, you'll see some squiggly lines moving up and down on the bottom of your chart. Don't adjust your monitor. That's what it's supposed to look like. In our picture, it's the blue line moving across the chart.

What it Means

When using this indicator, it helps to have a basic understanding of what it tells you. While you could trade it all day long, it's always a good idea to know why you're doing it. If you look at the chart, you'll notice that the blue line moves up and down on a section that goes from 0 to 100. You'll also notice two lines that go across the chart, one at 30 and one at 70.

When the relative strength index line goes under 30, this means that the currency pair is oversold. If the line goes above 70, it means that the currency pair is overbought. If the line is somewhere in between, it means that it's just about right for that currency pair.



How to Use It

When trading with this indicator, you can see that it's a pretty simple concept. When the line gets above 70, it tells you that the market is overbought and you should put in a sell order. When the market gets below the 30 line, it tells you that it is oversold and you should put in a buy order. It's not the most exotic strategy out there, but it gets the job done.

If you look at the chart, you'll see when the market was overbought, it started to move down steadily afterwards. While it will not always do this, it tends to give you an idea of what the market will do in the future. Overbought and oversold markets always tend to correct themselves over time.

Trends

Besides using the RSI to see if the Forex market is overbought or oversold, you can also use it to spot trends. Most traders use the 50 point on the chart as a breaking point for a trend. If you think that an uptrend is about to take place, you need to make sure that the RSI is above 50. On the other hand, if you think the market is moving down, you need to make sure the line is below 50.

Combinations

This indicator is one that is often combined with other indicators. You can use it in combination with the MACD , Bollinger Bands and other indicators to help find out when a trend is about to form. As always, throw it on a demo account to see how it works and then proceed with caution on your live account.


Return From Relative Strength Index to Forex Charts

Return From Relative Strength Index to Forex Trading

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