EURUSD 1.1787 USDJPY 112.14 USDCAD 1.2774 EURCZK 25.557 USDCZK 21.677 EURPLN 4.2304 USDPLN 3.5887
EURUSD 1.1787 USDJPY 112.14 USDCAD 1.2774 EURCZK 25.557 USDCZK 21.677 EURPLN 4.2304 USDPLN 3.5887

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The RSI index measures the dynamics of price action, indicating overbought and oversold conditions of a market

Rule of thumb

The RSI chart can provide additional information on  potential support and resistance levels, that is not directly visible on the price charts

The Relative Strength Index (RSI) is a very popular oscillator that measures the speed and change of price movements. For this index, the values range from 0 to 100. According to its author, J. Welles Wilder, the market is considered overbought when the value is over 70, and oversold when under 30.

 

rsi, relative strenght index

 

The calculation of the RSI is based on historical values. According to Wilder, the most appropriate settings  include the last 14 observations while calculating the indicator, however other values of this parameter like 9 and 25 are also popular.

 

The RSI may provide signals through divergencies, when the movement of the RSI fails to confirm the corresponding market movement. In such a case the market may correct  in the direction of the indicator. On the other hand, the RSI setting new  extremes (peaks or lows) in the direction of the main market tendency may suggest continuation of  a trend.

 

The RSI chart can also be analysed in  a similar manner as a price chart – in the search of trendlines and “price” formations, such as triangles and head and shoulders  that could indicate its future movement.

 

How to use it with MetaTrader 5:

  • From the MetaTrader 5 menu choose “Insert”/”Indicators”/”Oscillators” and then the “Relative Strength Index”.
  • Indicate the requested parameter of the RSI – by default the value is 14.
  • The RSI will be created automatically by MetaTrader 5.

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