This is one of the generally accepted ways to use the RSI.

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Another important aspect to note is that while the RSI it did not cross the 30 line, the instrument still reversed. The courses can be a compliment to your current approach, or be used as a completely independent model.

But there is usually a fairly strong consensus of a stock's future earnings that the average investor cannot disprove.

They are Reversal Signals right? Don't we just sell at "70" and buy at "30"? This is one of the generally accepted ways to use the RSI. While it is important to recognize and be alert to divergence it is not a trend reversal signal. While they do identify overbought and oversold conditions, they are merely just overextensions within the current trend. By monitoring the range you will also be able to stay with a trend longer and not be so quick to reverse a good longer term position.

Does it work in all timeframes? What about 60, 15 and 5 or 3 minute charts? Do you have to change the period for the calculation of the RSI value for shorter term charts and different markets?

My work is based on the standard RSI fourteen period value calculated on the close price. We use the same value for all time frames for analysis in markets. You can change the period value for shorter or longer term charts, but it will distort your interpretation. My primary analysis is based on Elliott Wave Theory. Many of my course students use Elliott Wave, Fibonacci, Gann and other approaches in their analysis. Newer traders oftentimes make the mistake of thinking that as soon as the RSI enters overbought or oversold territory that the pair in question will almost immediately move in the opposite direction.

The reality is that once a pair enters those areas, the pair can become even more overbought or oversold. So the answer is to wait for the RSI to move out of those overbought and oversold areas before a prudent trade can be executed.

Take a look at chart below for an example on this Also, remember that when implementing these RSI signals the signals that indicate taking a trade in the direction of the Daily trend will be the higher probability trades.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

Take a free trading course with IG Academy Our interactive online courses help you develop the skills of trading from the ground up. This RSI calculation is based on 14 periods, which is the default suggested by Wilder in his book.

Losses are expressed as positive values, not negative values. The very first calculations for average gain and average loss are simple period averages. Taking the prior value plus the current value is a smoothing technique similar to that used in calculating an exponential moving average. This also means that RSI values become more accurate as the calculation period extends. SharpCharts uses at least data points prior to the starting date of any chart assuming that much data exists when calculating its RSI values.

To exactly replicate our RSI numbers, a formula will need at least data points. Wilder's formula normalizes RS and turns it into an oscillator that fluctuates between zero and The normalization step makes it easier to identify extremes because RSI is range bound. RSI is 0 when the Average Gain equals zero. There were no gains to measure. RSI is when the Average Loss equals zero. This means prices moved higher all 14 periods.

There were no losses to measure. The smoothing process affects RSI values. RS values are smoothed after the first calculation. Average Loss equals the sum of the losses divided by 14 for the first calculation. Subsequent calculations multiply the prior value by 13, add the most recent value and then divide the total by This creates a smoothing affect.

The same applies to Average Gain. Because of this smoothing, RSI values may differ based on the total calculation period.

Parameters The default look-back period for RSI is 14, but this can be lowered to increase sensitivity or raised to decrease sensitivity. The look-back parameters also depend on a security's volatility. RSI is considered overbought when above 70 and oversold when below These traditional levels can also be adjusted to better fit the security or analytical requirements.

Short-term traders sometimes use 2-period RSI to look for overbought readings above 80 and oversold readings below This chart features daily bars in gray with a 1-day SMA in pink to highlight closing prices because RSI is based on closing prices. Working from left to right, the stock became oversold in late July and found support around 44 1.

Notice that the bottom evolved after the oversold reading. The stock did not bottom as soon as the oversold reading appeared. Bottoming can be a process. From oversold levels, RSI moved above 70 in mid September to become overbought.

Despite this overbought reading, the stock did not decline. Instead, the stock stalled for a couple weeks and then continued higher. Three more overbought readings occurred before the stock finally peaked in December 2.

Momentum oscillators can become overbought oversold and remain so in a strong up down trend. The first three overbought readings foreshadowed consolidations.

**The Relative Strength Index Traditional interpretation and usage of the RSI is that RSI values of 70 or above indicate that a security is becoming overbought or overvalued.**

Developed J. Welles Wilder, the Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price movements. RSI oscillates between zero and Traditionally, and according to Wilder, RSI is considered overbought when above 70 and oversold when below The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price movements. Learn more about the relative strength index (RSI) and how it can help you make informed investing decisions.

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**Relative Strength Index (RSI) indicator explanation and interpretation. You will learn more about Relative Strength Index (RSI) and will find some examples and calculations. Student's Question: When it comes to the RSI, how does a trader deal with the "overbought" and "oversold" areas? Thanks.**

Interpretation Excellence. RSI technology makes it possible for simultaneous interpretation to be offered remotely. However, the quality of any interpretation is only as good as the ability of an interpreter to interpret what is being said while it is said, from one language into another. RSI Interpretation by Richard Krivo DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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