RSI indicator: how to understand it and use it for trading.

The content.

What is RSI indicator?
The parameters of the indicator RSI
The algorithm for the calculation of the indicator RSI
RSI signal indicator and how to apply?
Overbought/oversold zone.
Level 50
Divergences
The format of the RSI

We have already talked about the General indicators. And even if the signal indicator now I would like to introduce another useful tool. And not a very complicated technical analysis. It is called an indicator of RSI.

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What is RSI?

The indexes are relative (RSI) is an indicator of the oscillator that is displayed when the market is overbought or oversold zone in a situation of backward point.

Compared to other Forex RSI indicator measuring the relationship of the market by tracking the closing price this is a leading indicator, or never synchronous calls.

RSI indicator to compare the absolute value of the growth of the price of a currency pair over time in the level of the same period of autumn. The result of the calculation will be displayed as a curve on a graph, with a range of values from the. 0 to 100%.

Rsi indicator

The indicator developed by J. Welles Wilder and published in magazines in commodities. 1978, June later Wilder wrote a book “concept in the new system, technical trade,” which he described in detail the essence of the relationship. RSI oscillator after becoming very popular among traders. And allows multiple users to evaluate the strength of the market.

Some vendors that caused life to teach discipline, it will hurt-J. Welles Wilder.

The indicator’s parameters.

RSI indicator with single parameter – the time period that defines the length of the time period used in the calculation. The default interval is 14 periods can change depending on market activity. It should be borne in mind that in the job market, curves, of indicator often skip a level of. 30 and 70%, together with the majority of isolated signal but no interference.


Rsi period indicator.

To filter the signals that an error in this situation. You may increase the amount of time, such as 21, one should decrease the period if market comic peaceful and almost no indication appears. Not just efficient. In this situation, you can reduce the length of the period. 7

The algorithm for the calculation of RSI

A common method for calculating an RSI for N periods are as follows:

    1. The closing price will be taken for the selected period. Includes the current date.

 

    1. Continue to the date when the closing prices are higher than the opening the next day.

 

    1. Be calculated and divided by the average absolute value of N in the overall earnings of these. (In many cases as the moving average period.)

 

    1. There is a set date when the closing price was lower than the opening price followed. Similarly, with profits falling, the average calculation.

 

    1. If we divide by average profit fall in average, we will have a relationship (RS), which will become the basis of the indicators.

 

  1. Based on index relativity calculate RS: RSI = 100-100/(RS + 1).

The process will be repeated for each candle has a newly established. Long-term studies, very slowly bend under Low-price fluctuations on the filter, but it is also less susceptible to trading signals. And in the opposite direction in a short text that more, but many people turn out to be false.

RSI signal indicator and how to apply?

Overbought/oversold zone.

Often, people called RSI indicate overbought or oversold indicators, even if this is not correct. The point is that, while the indication of these zones is not a buy signal. Or sell. Traders use this indicator mainly determines the point of entry into the market.

In other words, if the indicator level of 70 or more, then the market is considered overbought, if it is lower than the level 30 – the market is oversold, in this case, while across these levels is not a signal to sell immediately. Since the indicator RSI can remain in this zone for a long time, the General. The position of the indicator level 70 with strong legs indicate a starting point. Of large increases or is lower than the level 30 with a downtrend – a strong decrease.

 Rsi indicators.

Rsi indicators.

The time of entry into the market. I. e of the trend is a situation when. RSI in the overbought or oversold zone when RSI above level 70 entrepreneurs, sales preparation, but the open command. Open a position that occurs at the time when the. RSI indicator level 70 down the opposite strategy should be used for level. 30. one such purchase order should be open only when the level of direction. 30 from the bottom to the top.

Level 50

Even if I highlight the attention of RSI oscillator overbought and overbought level 50 is important, you may notice that the strong trend rates often find that level of resistance.

If you’re looking for confirmation of , And then verify that the RSI is above 50, if you think the market is in a downtrend, and then verify that the RSI is less than 50, assume that you’ve found, but you doubt the strength to avoid false signals. Wait a few minutes, when the RSI crossing above 50 confirm hypotheses. Now we can say with confidence that the trend that has occurred. RSI level crossing above 50 is good.

Use the line 50 to confirm the trend. If the RSI is above the 50 line are likely higher and should be purchased only. If the bottom-we sell only

Divergences

The main signs of divergence indicator, or more simply. Move the price curve and curve-indicator in different directions. As with the other oscillator divergence signal came in the case of a discrepancy between the proportion of new highs or lows which oscillators and price chart.

If the new maximum oscillator chart lower, and on the new price chart is higher than this, then there is a “conflict” between the oscillator and price. This is the sell signal.

If the new price low, below the previous one, and makes the oscillator at the new low above the previous. This means that the relationship of the Downtrend decreased. To back up and it is time to buy.

It is assumed that the distance between the minima and maxima on the oscillator should be from. 7 50 period, otherwise the divergence to be too “raw” (less than 7) or “burned out” (if greater than 50).

A bullish Divergence, signal:

A bullish divergence

A bearish divergence, signal:

 Rsi indicators.

The format of the RSI

Around the various forms of technical analysis, such as the flag. The triangle and other mathematical elements appear quite often on chart indicator. At the same time on the price chart, they may not notice many traders believe that these numbers can predict the success of the trend. One should treat them according to the same principles as in the case of the appearance of the different elements. Lol on the price chart

Most traders wondering about this strategy training. They consider no pattern, A very powerful signal. However, there is a fan of it.

Therefore, the I’m trying to tell you how to use the indicators. RSI trading a good summary, I would like to tell you the truth, which can be found in any book. Lol about the Forex using one of the indicators is stupid, the results will get together to look for a pair to indicate good RSI.

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