Relative Strength Indicator (RSI)
Relative Strength Index (RSI), an oscillator introduced by J. Welles Wilder. The RSI is based upon the difference between the average of the Forex closing price on up days vs the average closing price on the down days over a given period, and is plotted on a vertical scale of 0 to 100.
Wilder advocated a 14-day RSI, although shorter and longer periods have gained popularity when the market exhibits certain characteristics. Generally, RSI is measured in a period between 5 and 25.
How to use it?
Wilder recommended using 70 and 30 and overbought and oversold levels respectively. Generally, Forex Buy signals are triggered when RSI is in oversold (20-30) area, potentially meaning that the stock is about to reach its low for this trend, and Forex Sell signals are triggered when RSI is in overbought (70-80) area, potentially signaling a Forex market top.
Try to combine it with EMA and you’ll get great result on your trades.
You can use this technique for any currency at 1 Day time frame. We have to use 5 EMA (Green Line), 12 EMA (Red Line), and RSI 21.
Entry Rules for Short: Sell when 5 EMA (Green Line) crosses down and below 12 EMA (Red Line) and RSI is below 50.
Entry Rules for Long: Buy when 5 EMA (Green Line) crosses up and over 12 EMA (Red Line) and RSI is above 50.
Exit rules: Exit when 5 EMA (Green Line) and 12 EMA (Red Line) cross again or when RSI crosses back through 50.
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