Relative Strength Index (RSI) in Forex Trading

One popular technical indicator is the Relative Strenght Index (RSI) in forex trading. Let Tradehall, an online forex broker help you in it.

RSI is a momentum indicator frequently used in technical analysis. At any given trading period, it is able to measure many of the most current price movements, such as in the stocks, futures and options, forex, and others.

Originally created back in 1978, RSI still continues to be one of the most popular indicators in the market.

The advantage is you can use this indicator on numerous forex trading platforms. Come along and we will walk you through what RSI is basically about.

 

How does RSI work in forex trading?

Let us say that you are trading using MT5 and the candlestick chart.

You can add this indicator to your chart very easily in just a few clicks. After adjusting the settings according to your personal needs, your chart will have the indicator applied to it.

This indicator is displayed as an oscillator. In forex and other traded instruments, oscillators represent the line graphs that move between two extremes and they are shown right below the charts in most cases.

You can read RSI from 0 to 100. It is able to analyze price changes in the market and evaluate if the market is in an overbought or oversold condition.

In the forex trading market, the market is in the overbought state when the RSI indicator is above 70 percent, and the market is in the oversold state when the indicator is below 30 percent.

This can be a great help for traders to determine where the prices can head to in the near future, be it bullish or bearish price movements.

 

Centerline crossovers

Other than monitoring the overbought and oversold indicators, traders using the Relative Strength Index (RSI) indicator can also search for centerline crossovers.

A movement from under the centerline (50) and over it signals a rising trend.

A rising centerline crossover happens when the RSI value crosses above the 50 Line on the scale and moves towards the 70 Line.

This tells us that the market trend is increasing in strength. This also means that the market trend is projecting a bullish signal until the RSI approaches the 70 Line.

A movement from above the centerline (50) to below it shows a falling trend.

A falling centerline crossover happens when the RSI value crosses under the 50 Line on the scale and moves towards the 30 line.

This tells that the market trend is weakening in strength. This also means that the market trend is giving out a bearish signal until the RSI approaches the 30 Line.

 

What can you learn from this indicator?

In most cases, whenever RSI surpasses the horizontal 30 reference line, traders perceive it as a bullish sign.

Whereas once it slides below the 70 reference level, it is a bearish sign.

This can be a great way to identify possible reversals in the market and better plan your positions while trading.

There are numerous analytical options for traders to make sure that they are doing the right thing.

 

In a Nutshell

Many traders in the forex market use technical indicators, together with fundamental analysis – a process of analyzing the continuous political and economic events in the market to predict the possible price movements in the market.

With the use of both of these analytical methods, forex traders can analyze the market in a very useful way.

As a result, this can help them make the right decisions while trading currency pairs.

Schedule a chat with one of our customer services consultants now to talk about the demo accounts, mentorship, and training or everything on forex trading.

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