What is an RSI indicator?


RSI indicator is an momentum oscillator that measures the speed and change of price movements. RSI(Relative Strength Index) oscillates between zero and 100. Traditionally, and according to Wilder, RSI indicator is considered overbought when above 70 and oversold when below 30. Signals can also be generated by looking for divergences, failure swings and centerline crossovers. RSI can also be used to identify the general trend. By using RSI indicator you will be able to unleash your trading expertise in a significant level. Surely this will add an extra ease for your successful trading.

RSI indicator for metatrader

RSI indicator upward movements in closing price to downward movements over a selected period. Wilder originally used a 14 day period, but 7 and 9 days are commonly used to trade the short cycle and 21 or 25 days for the intermediate cycle. It is noted that Wilder does not use the standard moving average formula and the time period may need adjustment.
Developed by J Welles Wilder, the RSI indicator is considered a momentum oscillator which measures the amount of directional price movements to try and determine if an asset has overbought or oversold conditions. It measures momentum on a scale from 0 to 100 and is most often based around a 14 day time frame. If a shorter time period is used, the RSI movements tend to be more volatile. 70 is typically marked as a ‘high’ level and 30 generally represents a ‘low’ level. Despite it being rare, levels in the 90’s and below the 20’s are sometimes recorded which demonstrates even stronger momentum.
Plotted within a panel above or below the price chart, The RSI indicator can also identify historical price trends and compare them to the current markets strength. However, its key measure is in relation to overbought and oversold conditions as it has the ability to show traders when a security or index is changing direction and reversing. RSI indicator comprises of a single fluctuating curve, although traders will often add an EMA (exponential moving average) as it will further aid the value of the trading signals. Of all indicators, RSI is considered the leader due to its signs showing that a trend change is about to happen. The only problem is that the RSI is not great with signaling timing which often means that a trader must add a lagging moving average to confirm what the RSI indicator is initially indicating.
The divergence signal in relation to RSI will often signal a trend change but as stated earlier, are not very good at predicting the time for when the trend is going to change. It could appear straight away just as it changes or sometimes it could take as long as several weeks. Therefore traders will use the RSI divergence as their first warning that a trend may be beginning to change. A price trend is likely not to change when the RSI and the price chart lines are moving in the same direction.

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