The Relative Strength Index (RSI) is a momentum oscillator that helps forex traders identify overbought and oversold conditions. In this guide, we’ll explore how RSI works, its advantages, and the best trading strategies to use it effectively.
The Relative Strength Index (RSI) is a momentum-based indicator developed by J. Welles Wilder to measure the speed and change of price movements. It ranges between 0 and 100, identifying overbought and oversold conditions.
The RSI is calculated using the following formula:
RSI = 100 – [100 / (1 + RS)]
Where:
Traders use RSI levels to identify potential reversal points:
Trading Tip: RSI works best in ranging markets where price oscillates between support and resistance.
Divergence between price and RSI can indicate a potential reversal:
Traders use 50 RSI level to confirm trend direction:
Pairing RSI with moving averages (e.g., 50 EMA) can refine trade signals:
✅ Pros:
❌ Cons:
The Relative Strength Index (RSI) is a powerful momentum indicator that helps traders identify overbought/oversold conditions, trend reversals, and momentum shifts. When combined with other technical tools, RSI enhances trade accuracy and decision-making.
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