Forex Technical Analysis Articles - Ranging Indicators / Oscillators - Relative Strength Index - Conclusion

Technical Analysis

1. Introduction

2. Construction

3. Overextended Currencies

4. Extreme Levels

5. Divergence

6. Ex. of Ranging Market

7. Ex of Ranging Market Cont.

8. Conclusion

RSI is one of the most common and useful indicators in technical analysis. It helps a trader to analyze when the buying and selling phase of a currency reaches a critical point. This helps a trader to see current sentiments, if a reversal is at hand, or to locate an ideal point in which to enter the market. A solid understanding of RSI is a must for any trader who uses technical analysis in their trading decisions.

In addition to the techniques presented in this article, RSI can also be used to look at support and resistance levels and various chart patterns. By studying failure swings and by looking at how the market responds when RSI is approaching the 70 or 30 levels, the RSI can sometimes show more clearly than prices themselves, levels of support and resistance. RSI also often forms chart patterns such as head and shoulders or triangles that may or may not be visible on the price chart.

RSI Summary
RSI gives an indication whether a currency is being overbought or oversold, or in other words it is a measure of momentum.
Trend Identification
Interpretation	Description	Results
1. Trend	When a currency’s price is increasing. When a currency’s price is decreasing	RSI will move towards 100. RSI will move towards 0.
2. Oscillation	RSI tops out at or above 70. RSI bottoms out at or below 30.	Overbought - Sell Oversold - Buy
3. Center Line Crossovers	RSI crosses below the centerline. RSI crosses the centerline going upwards.	Bearish phase in market Bullish phase in market
4a. Bearish or Negative Divergence	Price is making a new high, but the RSI is failing to surpass its previous high	Market top eminent - Selll
4b. Bullish or Positive Divergence	Price is making a new low, but the RSI is failing to surpass its previous low.	Market bottom eminent - Buy
Entry / Exit	If the long-term trend is bullish	Oversold readings mark potential entry points.
Entry / Exit	If the long term trend is bearish	Overbought conditions make good entry points.

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