RSI is a momentum indicator which measures a currency pair's price relative to itself. It is relative to its past performance. It is also front weighted. Therefore it gives a better velocity reading than other indicators. RSI is less affected by sharp rises or drops in a currency pair's price performance. Therefore it filt ers out some of the noise in a currency pair's trading activity.
RSI's extreme levels are 0 and 100.
Traditionally, buy sgnals are triggered at 30, and sell sgnals are triggered at 70. However, many analysts are now usmg 20 for buy sgnals and 80 for sell sgnals. Some buy when the RSI exceeds 50 and sell when RSI falls below 50 but they miss the first part of the move.
One of the more important aspects of RSI is to look for divergence between price action and RSI. Upwardly doping price and downward doping RSI should be taken as a warning. Usually, one of them is wrong. More often than not, this indicates that price is about to break down.
The reverse is true for downward doping price and upward doping RSI. It usually indicates that price is about to break out of a decline. (See the chart in the —vergence Section above)
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