Hello traders, Hiro is here.
Today, I want to talk about “How to trade like a pro with RSI”.
If you are an experienced person of trade, you must have been heard this indicator more than once.
RSI is one of the most popular technical indicators among online traders which shows the value of currency’s overbought and oversold.
If you use this indicator effectively, it will help your trade a lot definitely. I recommend watching the article till the end so that you won’t miss any beneficial information!
What is Rsi?
RSI, developed by J. Welles Wilder, is a momentum oscillator that measures the speed and change of price movements, and it is an abbreviation of “Relative Strength Index”.
Below is what you can do with RSI and the features of it.
- Overbought means an extended price move to the upside; oversold to the downside.
- When price reaches these extreme levels, a reversal is possible with high probability.
- The Relative Strength Index (RSI) can be used to confirm a reversal.
So, if you are a contrarian trader, this indicator sometimes will be a great help to spot the reversal point.
The Formula of RSI
RSI is calculated using the following formula:
RSI = 100 – (100 / (1+RS))
RS = n period average of up closes / n period average of down closes
My recommend parameters and period of RSI is default setting (overbought value is 70, oversold value is 30, and the period is 14 days) as many other RSI traders are using the default setting.
How to use RSI
If the price is in 70 ~ 80 of RSI, the price is easy to start to fall.
If you agree with the RSI value, maybe you can have a sell position here.
If the price is below 20 of RSI, the price is easy to start to ride up.
So, maybe you can have a buy position here.
Especially, RSI is really good for newer traders because you can check the market circumstance only by watching the numbers just like this.
How to trade RSI Divergence
There are some more things you have to know when you trade using RSI.
We have a chart pattern called “divergence” when the price movement is contrary to the indicator movement like the above picture.
As you can see the picture, The candle chart’s price is updating the previous high. But on the other hand, in the RSI, the price doesn’t update its previous high.
When you encounter the chart pattern like this, Maybe you can do the contrarian trade since it is a signal the price will reverse soon.
Contrary to the divergence, When you find a hidden divergence pattern like the above picture,
This is gonna be a signal the price will continue its trending momentum for a while.
What you should be careful when you use RSI
When you use RSI indicator, you need to keep in mind that RSI is not so useful at the trend market compared to the range market as there will be many fake signals at trend market.
If you wanna trade RSI with a high win rate, you have to identify which market situation is happening in your charts at the moment, like trend or range?
Okay, Thank you for watching till the end!
I will continue to upload more articles which is gonna be useful for your trade life.
Please look forward to it