Relative Strength Index – RSI
1.0 What is Relative Strength Index ?
Relative strength index is technical indicator which compares current and historical gains and losses in order to define if the asset’s value is overpriced or underpriced. Formula for calculating RSI is:
RSI = 100 – 100/(1 + RS*)
RS = Average of x days’ up closes / Average of x days’ down closes

Example of GBPUSD chart – RSI indicator is red:

Interval in which RSI ranges is from 0 to 100 and it shows if asset is overvalued or undervalued. In fact, as the RSI closes to level 70, the asset can be considered overvalued and has a big chance to be overbought. On the other hand, when RSI reaches level 30 the asset is deemed to be oversold. The best way to use this index is as a additional information to other stock-picking tools because using only RSI trader can create false buy and sell signals which can mislead observer.

2.0 How we can trade using this RSI indicator ?

1) We can use RSI to determine overbought and oversold moment in trading. Below 30 is oversold and above 70 is overbought.There are some rules for traders :
– Market can be oversold or overbought very long time. It is not smart to trade sell orders above 70 and buy orders below 30 without deep analysis.
– Do not buy in oversold market or sell in overbought market without some conformation in your direction (for example some big move, strong bullish or bearish candle etc.)
– The best strategy is – buy or sell afther pullback and respect main trend. For example if trend is bullish on daily or H4 chart, price is above 50 RSI in strong bullish direction you can buy if price goes in oversold area on 5 minute or 30 minutes chart. See images below :

On daily chart we see bearish trend. Next 7 days price will fall 300 pips down :

2) We can use RSI indicator to find divergence and predict posibile change of the trend :

Using RSI trend lines we can avoid false breakout in trading.

3) My favorite way to use RSI – draw trendlines on RSI chart and use for trading !
Traders can draw trendlines below and above RSI line. If price breaks trendline than trend will change. See example :

This example shows bullish trend on 30 min chart.I can make buy orders above trendline but if price breaks RSI trendline than trend is changed.Of course on 30 minute chart we can see 25% from ATR bearish trend in price breaks this line (around 20 pips).If price breaks daily trendline RSI that can give few hunderds pips profit.

Please ask anything about RSI !
Regards!

RMI indicators were introduced by Roger Altman when in February of 1993 it was introduced in a magazine called “Technical Analysis of Stocks & Commodities”. Improving the data that the classic RSI indicator gives – if the price reaches the area of over sale/overbuy – is the main usage of this indicator.

The formula for calculating this indicator goes as follows: RMI= 100x N/(H+B), where N is the number of days; H is the sum of fluctuations of positive closing prices for the period between “today” and “N days ago” and the B is the sum of fluctuations of negative closing prices for the period between “today” and “N days ago”.

As this RMI indicator is a classical oscillator of the technical analysis, it makes possible for a user to recognize certain possibilities that can be used in trading. When, in the case of downtrend, the indicator surpasses 70%, the signal for the possibility of further downtrend is being sent. The RMI indicator will signal the overselling and when it reaches its high, the chance of declining appears.

In the case of uptrend, when the indicator surpasses the level of 30%, the signal of reaching of the end of the price correcting, so the uptrend can start. In this case, the thing to do is buying the assets.
There is an option for the RMI indicator to form the price patterns in the form of graphs that the traders can take into consideration.

This indicator can also enable the user to watch the signals of convergence/divergence and compare it with the movement of the price. Before forming a decision, it is important to watch the signals.

My usage:
I use this indicator very often.I use m30 and H4 timeframe at most. Red color describe bearish or bullish trend, blue overbought or oversold. When I define trend on H4 or daily chart, make analysis then I go to M30 chart and I wait that blue color go into red and than I buy or sell.

Example :
Trend is bullish. You want to buy afther pullback.You wait that price touch Pivot point or support and you do not buy on support. You wait that blue RMI indicator line goes in red and than buy.

Download RMI indicator free :
This free indicator you can download from instaforex site. Download RMI indicator
Download location : https://www.instaforex.com/downloads/indicators/instaforex_rmi.zip

The Most Excellent Indicator for Forex
There’re several various indicators engaged for the Forex trading nowadays as well as it may be the problem to deciding that which is good for you. We’ll talk about three of major indicators as well as you may decide that which is the most excellent indicator for the forex is.
Here you can see excellent video with basic rules about MACD trading strategy:

Moving Average Convergence Divergence (MACD).
This type of indicator is preferential my several traders due to in-built aspects. It has a skill to classify the reversal of market as well as the trend of currency pair, which you’re trading in. It’s a best indicator for the determining false outs as well as will reduce this difficulty for you.
The Moving Average Convergence Divergence may be used to outfit your style of trading. If it’s used to be extra sensitive, it’ll improve your opportunities for trading but at minus side, this’ll emit more fake alarms. It is probably the good indicator for the forex. Here’re few of the causes for selecting Moving Average Convergence Divergence:
o Can classify a trend in the market reversal
o Can determine the false outs & reduce the problem
o Sensitivity may be used to outfit the individual
There’re some of the good point of Moving Average Convergence Divergence indicator other than to provide you the excellent sense of safety it’s best to use this with minimum each other indicator.
Moving standard indicator lays the claim to being an excellent indicator for the forex because of its skill to classify the trends as well as the locations of worth that must be purchased into. The moving standard indicator must just be applied for condition trading. There’re some time frame that are the best for applying the moving standard as well as here we’ll try to explain them:
• The moving averages classify the trends of price above some times as well as smooth’s out a price fluctuation, which short time instability reasons.
• It includes the sum of ending price and after that divides it a moving average time.
It’s the matter of assessment at what time the good times are but several traders employ the twenty days and forty days time to defend themselves. Attempt the moving averages as well as if it’s the good indicator for available forex.
Today, we’ll also discussed about Stochastic indicator.
This type of indicator is supported on many things also several to declare here but there’re the essential ideas at the rear it:
o Can foreshadow any weaknesses or strength in market quite frequently sooner than they happen.
o Has the skill to classify as well as indicate the trend turnaround.
These are only two of advantages of a stochastic indicator. Now you’ve some idea that how these 3 indicator performs. It’s now depends on you to decide that which will be the excellent indicator for the Forex with you own requirements.

The trading in a direction of strong trend decreases risk as well as increases income potential. An ADX is applied to determine at what time the cost is trending greatly. In several cases, it’s the final trend indicator. Finally, the trend can be your friend; however, it makes sure to know that who your friends are. We will study the worth of ADX like a trend strength indicator in the article.
Introduction to Average Directional Index – ADX
The Average Directional Index Average Directional Index is applied to count a trend strength. The Average Directional Index (ADX) estimations are supported on the shifting average of price variety growth over the given time period. Fourteen bars is a default setting, even though the other time frames may be applied. The Average Directional Index may be applied on some trading vehicle, for example, mutual cash, stocks, exchange-traded money, as well as the features.

The Average Directional Index is plotted like the signal line by the values which ranging from less of 0 to the high of hundred. Thos is a non-directional; it sign up the strength of trend whether the cost which trending up/down. Indicator is typically plotted in a similar like the 2 DMI lines, from Average Directional Index is derived.

When the plus DMI is more than minus DMI, the prices are shifting up, as well as gauge the uptrend strength. When the minus DMI is more than plus DMI, the prices are shifting down, as well as Average Directional Index gauges the downtrend strength.
Figure one is an instance of the uptrend overturning to downtrend. Observe that how the Average Directional Index rose throughout the uptrend, when the plus DMI was more than minus DMI. When the price overturned, the minus DMI crossed more than the plus DMI, as well as the Average Directional Index rose once more to gauge the uptrend strength.

Counting Trend Strength
The values of Average Directional Index (ADX) assist the traders to classify the most gainful as well as strongest trends for trade. The worth is as well necessary for distinguishing amid trending as well as non-trending situations.

Several traders will apply the Average Directional Index (ADX) reading more than 25 to propose that the strength of trend is sufficient for the trend trading policies. On the other hand, when the Average Directional Index (ADX) is under 25, several will keep away from trend trading policies.
Less Average Directional Index (ADX) is the typically a symbol of distribution or accumulation. When the Average Directional Index (ADX) is under 25 for over 30 bars, the price enters variety situations as well as price outlines are often simpler to classify. The price then shifts up & down amid support and resistance to find vending and purchasing interest, correspondingly. From the low Average Directional Index (ADX) situations, the price will ultimately getaway into the trend. In the figure three, price shifts from the low Average Directional Index (ADX) price to the uptrend by strong Average Directional Index.

Direction of Average Directional Index line is very important for the reading trend strength. At what time the line of Average Directional Index line is increasing as well as the price shifts in the way of trend. At what time the row is falling, the trend strength is then decreasing, in addition to, the price enters a time of consolidation or retracement.
A general misperception is here that the falling Average Directional Index (ADX) row means that trend is overturning. The falling Average Directional Index line just means that the strength trend is deteriorating, but it typically doesn’t mean that the trend is overturning if there’s been the price climax. On condition that the Average Directional Index (ADX) is more than 25, it’s the best to consider of falling Average Directional Index (ADX) row as simples low strong (Figure five).
Figure 5: A what time the Average Directional Index (ADX) is under 25, a trend is feeble. When the Average Directional Index (ADX) is over 24 plus increasing, trend is powerful. When the Average Directional Index (ADX) is over 25 plus falling, trend is fewer strong.

Momentum of Trend
The sequence of Average Directional Index (ADX) tops are as well a visual demonstration of on the whole trend momentum. The Average Directional Index (ADX) obviously indicates at what time a trend is losing or gaining momentum. The momentum is a velocity of cost. A sequence of the higher Average Directional Index (ADX) tops means that the momentum of trend is increasing. The sequence of the lower Average Directional Index (ADX) tops means that the momentum of trend is decreasing.

Some Average Directional Index (ADX) climax over 25 is measured strong, though it’s lower climax. In uptrend, the price may yet increase on decreasing Average Directional Index (ADX) momentum since the overhead deliver is consumed up as trend developments (Figure 6).

Meaningful when the momentum of trend is rising provides the trader assurance to allow profits run rather than exiting prior to trend has finished. Nevertheless, a sequence of lower Average Directional Index peaks is the warning to view price as well as manage the risk. The good decisions of trading are built on goals signals, not sentiment.

The Average Directional Index (ADX) may as well show the momentum divergence. At what time a price makes the higher high as well as Average Directional Index makes the lower high, there’s negative momentum divergence/non-confirmation. Generally, the divergence isn’t signal for the reversal, but quite the warning that the momentum of trend is varying. It perhaps in accordance with makes tighter a stop-loss/take the partial income.
Any time a trend changes the character, it’s the time to manage risk or assess. Divergence may lead to the trend continuation, reversal, correction, or consolidation (Figure 7).
The Strategic employ of ADX
The price is a single most vital signal on the graph. Check the price first, as well as then check Average Directional Index in a context of which price is performing. At what time some indicator is applied, it must include something that the price only can’t simply tell us. Such as, the good trends increase of the periods of cost range consolidation. The breakouts from the range happen when there’s a disagreement amid the vendors or purchasers on the price, which instructions the equilibrium of demand and supply. Whether it’s more supply than the demand, or else more demand than the supply, it’s the variation that makes price momentum.

The breakouts aren’t difficult to spot, however, they frequently finish up or else progress being the trap. But the Average Directional Index tells you at what time the breakout are suitable by viewing at what time the Average Directional Index is burly enough for the cost to trend subsequent to the breakout. At what time the Average Directional Index increases from the below twenty-five to over twenty-five, the cost is strong burly to carry on in a direction of a breakout.

On the other hand, it’ frequently difficult to view at what time the price shifs from the trend to variety situations. The Average Directional Index shows at what time the trend has the weakened as well as is entering the period of variety consolidation. The range situation exist at what time the Average Directional Index drops from the over twenty-five to below twenty-five. In the range, a trend is to one side as well as there’s a common price contract amid purchasers and venders. The Average Directional Index meander to one side below twenty-five until the supply balance as well as demand changes one more.
The Average Directional Index provides the great policy signals at what time combined with the price. First, apply the Average Directional Index to settle on whether the prices are non-trending or else trending, as well as select the suitable trading policy for the situation. In the trending situations, the entries are created on the pullbacks as well as taken in a direction of trend. In the range situations, trend-dealing policies aren’t suitable. Nevertheless, the traders may be created on the reversals at the support (long) as well as resistance (short).

Finding the Gracious Trends
The most excellent incomes come from the trading a strongest trends as well as avoiding the range situations. The Average Directional Index not just identifies the trending situations, it assists the trader search a strongest trend for trade. The skill to count a strength trend is the main edge for the traders.

The Average Directional Index as well identifies the range situations, so the trader wouldn’t get stuck attempting to the trend deal in one side price activity. Additionally, it shows at what time the prices has gateways of the range with enough strength to apply the trading policies. The Average Directional Index as well attentive the trader to modifies in the trend momentum, so the risk management may be called. If you desire the trader become your friend, then you had better not to let the Average Directional Index become the stranger.

I’m going work out the another good Forex indicators intended for your orientation in the trading a CCI (Commodity Channel Index) Forex indicator.

I found this great video at youtube :

The CCI (Commodity Channel Index) is a flexible indicator that may be applied to classify the latest trend or else warn of great conditions. Commonly speaking, the (Commodity Channel Index) CCI indicator gauges the latest price level in relation to a standard price level above the given time period. The (Commodity Channel Index) CCI is comparatively high at what time the prices are extreme over their average; similarly, it is comparatively low at what time the prices are extreme under their average. Specifically, the (Commodity Channel Index) CCI indicator may be applied to classify oversold as well as overbought levels as RSI indicator.
CCI (Commodity Channel Index) may be applied as the top indicator. As the top indicator, it explains the oversold as well as overbought signals on the Forex graph. In addition to , Fore traders may apply bearish or else bullish divergence to be acquainted with beforehand that whether Forex marketplace is heading for meet the trend reversals otherwise not.
In brief, the CCI (Commodity Channel Index) indicator becomes oversold or else overbought at what time it reaches the comparative extreme. It’s quite simple; nevertheless, using only one Forex indicators is remote from sufficient to grip the dangerous Forex marketplace, the Forex traders yet require to pass on to many other good Forex indicators!

Relative Strength Index or the RSI sign is the most popular part of the “Oscillator” breed of technical indicators. RSI was created by J. Welles Wilder, to calculate relative changes which take place in between the high and low closing prices. The Traders use this Entry and exit point at the Forex market places.
The RSI is categorized as an Oscillator, as the resultant curve varies when the values are at 0 and 100. The lines of the RSI are normally drawn at both the values of 30 and 70 as a caution signal. Any value which exceeds 85 is regarded as a selling signal or a strong overbought situation, and suppose the curve drops below 15, it is a buying signal or a strong over sold situation generates.
Formula of RSI
The Metatrader4 Trading platform typically makes use of this RSI analysis, and the formula calculation series comprises of the simple steps:
1. Select a predefined period of “X” let the standard value be “14”, even though value 8 or 9 has a tendency to be more responsive.
2. Compute Relative strength = Average of “X” periods up closes/Averages of “x” periods down closes
3. Relative Strength Index = 100- (100/ (1 + Relative strength))
The RSI is a collection of a single varying curve. The traders will at time append an exponential moving average in Red to develop the value of the trading signs. The Blue line in the chart is the RSI; the Red line denotes “EMA” for the period “8” variable. The RSI is considered as a major indicator, as its signal anticipate for a possible changing trend. The demerit is however; the fact that the timing is not essentially an outcome of the RSI, the cause for this is that the lagging moving average is to verify the RSI signals.
Large flow in the price change can be the reason for the RSI to produce untrue signals. It is evident that the RSI with other indicator will be effective. Wilder had a strong belief that the indicator was open when its values deviate from the present prices in the market place.

RSI strategy :
Dailyfx team made excellent RSI image. here you can see RSI strategy using oversold / overbought trendline strategy :

What is Relative Strength Index?
In the year 1978, J. Welles Wilder, Junior introduced an oscillator called The Relative Strength Index RSI. It is mostly used by the investors who want to invest in the stock market as the index evaluates the price of a commodity relative to itself and compute the price action’s momentum. The rate of change or momentum indicator is referred by an oscillator. The values are mostly ranges from negative one to positive one or zero to hundred percent. It is precisely known as an internal strength index.

How does the Relative Strength Index Works?
Mostly a period ranges between 5 and 25 days is ideal for the measurement of the RSI. It’s calculations for a given period of time are based upon the difference between the average of the closing value on up days and the average closing value on the down days. The values taken by this method are then plotted on vertical scale that ranges from zero to hundred.
The period allocated by Wilder was of 14 day Relative Strength Index. However, due to market’s positive characteristics the long or short periods have also acquired popularity.
The Relative Strength Index Equation
The value of the is calculated with the help of an equation
1
________________________________________
1 + U/D
In this equation:
U stands for the average of upward movement.
D stands for the average of downward movement.
This sort of calculation is used by the RSI Classic.
The difference between the RSI Classic formula and RSI Conventional Formula:
The real method of IQ Chart’s for demonstrating the indicator is the RSI, where as the RSI classic is the conventional computation of the usual Relative Strength Index indicator.
In IQ Chart’s RSI, U is calculated as the total of upward movement and D as the total of downward movement. On the contrary in classic RSI, U is calculated as an average number of up days/upward movement and D is calculated as a an average number of down days/downward movement.
How to Interpret the Relative Strength Index:
The interpretations of the Relative Strength Index purely depend upon the approach of investment and trading or the condition of the market. One can find different possible interpretations of the RSI.

• One of the interpretations could be looking for the formations of common chart, resistance lines like the head and shoulders in the Relative Strength Index itself, which indicates the prospective reversals that might not be indicated on the stock chart.

• Another interpretation could be that when RSI is in oversold area which is in between twenty to thirty then the buy indicators are triggered and if the overbought ranges in between seventy to eight, the signals for sell are triggered. The first condition refers that a market is showing a low trend; where as the other condition shows a high trend of the market.

• The average for the Relative Strength Index is fifty. With this value the trend of the market can be recognized that whether it’s bullish or bearish. The value above fifty is counted bullish where as the below fifty is counted bearish.

• Recognizing the Relative Strength Index divergence could be a good tool of interpretation. Having a keen eye on the movement of RSI, like when the prices are going down or up would be beneficial.

Our advice :
USE TRENDLINES for RSI.Wait to see RSI trend breakout to enter into position
or
Watch for RSI divergence.