The RSI or Relative Strength Index is a valuable and often used indicator, created by developer J Welles Wilder in 1978. This indicator is called a momentum oscillator that measures the momentum and changes of price movements. It is also a valuable tool to confirm the movement of prices and trends, give buy and sell signals to the trader, identify oversold and overbought conditions in the market, and can also give a warning of possible price reversals. The RSI is similar in many ways to the Stochastic in the information it provides the trader.
The default setting J Welles Wilder recommends and most software is preset for is the 14 period but the 9 period and 25 period analysis is also often used by traders as well. Traders can set the settings at any number of periods, but a good thing to remember is that typically, the shorter the period, the more buy/sell signals the trader will see. When levels reach above 70 they are considered overbought, and when they dip below 30 they are considered oversold.
These settings are default settings but they can be changed a bit to get more information if the trader is inclined to do so. It is not recommended for a new trader to change the levels from the default settings unless they know what they are doing.
Even though the RSI has been around since the late 1970s, it has remained a very reliable and well used indicator by traders and has stood the test of time. There are five ways that RSI can be used to analyze commodities and other securities.
âEUR¢ Chart Formations- on regular price charts, formations, or chart patterns may not be evident, and the RSI helps to identify them.
âEUR¢ Support and Resistance- RSI demonstrates support and resistance levels, which in many cases can be clearer to understand and indentify than the prices themselves.
âEUR¢ Divergences- A divergence is not an uncommon thing in the Forex world, and happens when prices go higher or lower and doesn't get affirmed by a new low or high in the RSI itself.
âEUR¢ Failure Swings- This is when the RSI exceeds a high that was reached previously, or falls below a previous low at that moment in time.
âEUR¢ Tops and Bottoms- When the RSI rises above 70 or falls below 30
Each of the above uses gives the trader different information that can be a valuable asset when deciding the path they should take with the trades they are involved in. Just like with most indicators, RSI works well combined with other indicators to give more in depth information or to even confirm information that is being given by the
RSI at any given time.
Since Wilder invented the RSI in 1978, more information has been gathered and more work done on this valuable indicator, by Constance Brown and her RSI mentor, Andrew Cardwell, making it even easier to understand and more helpful in the market when it comes to reading different trends and overbought and oversold conditions. If you are just getting involved in trading, be sure to learn as much as you can about RSI as well as the other indicators it can be paired with. Most trading software will have RSI and will use default levels, which you can experiment with, but when doing that, be sure you have given yourself some time to use the RSI with the default settings to get the idea of what it tells you and how to read the information given. It is never advisable to use an indicator without the proper knowledge, even basic knowledge, of how it works and what it will tell you about the market.
The default setting J Welles Wilder recommends and most software is preset for is the 14 period but the 9 period and 25 period analysis is also often used by traders as well. Traders can set the settings at any number of periods, but a good thing to remember is that typically, the shorter the period, the more buy/sell signals the trader will see. When levels reach above 70 they are considered overbought, and when they dip below 30 they are considered oversold.
These settings are default settings but they can be changed a bit to get more information if the trader is inclined to do so. It is not recommended for a new trader to change the levels from the default settings unless they know what they are doing.
Even though the RSI has been around since the late 1970s, it has remained a very reliable and well used indicator by traders and has stood the test of time. There are five ways that RSI can be used to analyze commodities and other securities.
âEUR¢ Chart Formations- on regular price charts, formations, or chart patterns may not be evident, and the RSI helps to identify them.
âEUR¢ Support and Resistance- RSI demonstrates support and resistance levels, which in many cases can be clearer to understand and indentify than the prices themselves.
âEUR¢ Divergences- A divergence is not an uncommon thing in the Forex world, and happens when prices go higher or lower and doesn't get affirmed by a new low or high in the RSI itself.
âEUR¢ Failure Swings- This is when the RSI exceeds a high that was reached previously, or falls below a previous low at that moment in time.
âEUR¢ Tops and Bottoms- When the RSI rises above 70 or falls below 30
Each of the above uses gives the trader different information that can be a valuable asset when deciding the path they should take with the trades they are involved in. Just like with most indicators, RSI works well combined with other indicators to give more in depth information or to even confirm information that is being given by the
RSI at any given time.
Since Wilder invented the RSI in 1978, more information has been gathered and more work done on this valuable indicator, by Constance Brown and her RSI mentor, Andrew Cardwell, making it even easier to understand and more helpful in the market when it comes to reading different trends and overbought and oversold conditions. If you are just getting involved in trading, be sure to learn as much as you can about RSI as well as the other indicators it can be paired with. Most trading software will have RSI and will use default levels, which you can experiment with, but when doing that, be sure you have given yourself some time to use the RSI with the default settings to get the idea of what it tells you and how to read the information given. It is never advisable to use an indicator without the proper knowledge, even basic knowledge, of how it works and what it will tell you about the market.
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