Relative Strength Index

Relative Strength is a very popular momentum oscillator developed by Welles Wilder and utilized by forex traders. RSI compares upward and downward movements in closing price. The RSI uses a series of calculations to produce a graphical representation of the internal strength of a currency pair. Relative strength index is used to identify price tops and bottoms by identifying specific levels usually 30 and 70 on a scale of 0 to 100 on a price chart. RSI measures the degree of strength left in a price trend. The name "Relative Strength Index" is slightly misleading, as the RSI does not compare the relative strength of two securities, but rather the internal strength of a single security.

The relative strength Index (RSI) is a very popular and one of the few indicators which gives a reasonably accurate indication of ‘future’ price movement. This index compares the number of days the prices are up with the number of days the prices are down. If the relative strength index is greater than or equal to 70 then the currency is said to be over bought and if the relative strength index is less than or equal to 30 then the currency is said to be oversold. The Relative Strength Index is an extremely simple but effective tool for timing tactics. The RSI shows, sometimes more clearly than price themselves, levels of support and resistance. Prices must build momentum to move through support or resistance. The Relative Strength Index is an often underutilized tool you can use to confirm other trading signals. A popular method of analyzing the RSI is to look for a divergence in which the currency price is making a new high, but the RSI is failing to surpass its previous high.

RSI is an oscillator (meaning the value "oscillates" between 0 and 100), that measures the strength of a currency pair by measuring changes in its closing prices, which is very important because traders pay more attention to closing prices than to any other prices. When Wilder introduced the RSI, he recommended using a 14-day RSI. Since then, the 9-day and 25-day RSI’s have also gained popularity. Divergence of the relative strength index occurs when the price makes a new high (or low) that is not confirmed by a new high (or low) in the RSI.

In review we have shown that, the relative strength index is a popular oscillator devised by Welles Wilder. The RSI is used to detect whether markets are over-sold or over-bought. Relative strength index is used to identify price tops and bottoms by identifying specific levels usually 30 and 70 on a scale of 0 to 100 on a price chart. "A powerful way to use the relative strength index is by letting it signal possible price reversals. Price reversals can be determined by analyzing the Relative Strength Index looking for a divergence in which the currency pair is making a new high, but the Relative Strength Index is failing to surpass its previous high. Likewise the currency pair is making a new low, but the Relative Strength Index is failing to surpass its previous low.