Relative Strength Index (RSI) [Oscillator] indicator
Relative Strength Index (RSI) - technical indicator relating to to oscillatorsThe indicators that show the overbought and oversold state of the market.
It is a standard indicator of trading MetaTrader terminal.
Significant levels of the RSI indicator
RSI indicator values range from 0 to 100, it is recommended to use the 14-period version of the indicator, but in practice we also use 9 and 25-period RSI.
Market analysis with RSI indicator
The most common way to analyze RSI indicator is to find discrepancies (divergences), when the price chart forms a new maximum, and the RSI does not overcome the level of its previous maximum. Such a divergence indicates the possibility of a price Turning.
If the RSI indicator then reverses downwards and falls below its trough, it completes a "failed swing". The "failed swing" confirms a price reversal in the near future.
There are the following Relative Strength Index signals:
"Tops and Bottoms." - The tops of the RSI indicator tend to form above the 70 level and the bases - below 30, and they are ahead of the formation of tops and bases on the price chart.
"Graphic Models." - "head and shoulders", triangles, and other patterns found on RSI indicatorwhich may not show up on the graph.
"A Failed Swing." - Breakout of a support or resistance level. Occurs if the RSI rises above the previous high or falls below the previous low.
Formula for calculating the RSI indicator
RSI = 100-(100/(1+U/D)),
- U is the average value of positive price changes;
- D - the average value of negative price changes.