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As it sounds, the Relative Strength Index (RSI) casts the ratio of the instrument’s strength compared to other periods, which is usually a value between $ 30 and 70. It is one of the main indicators used in FXLORDS’ Managed Forex Accounts.
The most common method for analyzing this indicator is to look for deviation between the values of the indicator and those for the prices, meaning; when prices reach a new record high, and the RSI remains below the previous high. This deviation is an indicator of a nearby change in the current direction. When the Relative Strength Index (RSI) begins to fall and then start penetrating the previous bottom, it may have therefore confirmed the downward trend.
Ways to use the Relative Strength Index (RSI) chart analysis:
Tops and Bottoms When RSI above 70, it usually indicates that the price is forming a top, and when it falls under 30, it indicates that the price is forming a bottom. Usually the indicator reaches a maximum value before an actual shape of a top or bottom is formed on the price chart.
Chart Patterns RSI often forms some known models and patterns such as the head and shoulders or triangles that may or may not be visible on the price chart.
Failure of support or resistance – Breakthroughs That’s when the RSI exceeds the previous high or fall to a new low.
Support and resistance levels The Relative Strength Index (RSI) sometimes shows support and resistance levels more clearly than the price itself.
Deviation As discussed above, deviations occur when the price reaches the top (or bottom) without a confirmation, a top (or bottom), from the RSI. In these cases, the price will usually start correcting alongside the trend of the relative strength.
