The RSI Indicator

The Relative Strength Index indicator is one of the most commonly used indicators in the financial world.

It is in the class of momentum oscillator indicators and was developed by a technical analyst Welles Wilder.

The main function of this indicator is to detect strength and weakness in a trend.

Often used to see over bought and over sell conditions based in its range of measurement from 0 to 100 in its own graphics where 0 is in the bottom of its range and 100 is at the top.

The Formula is: 100 – (100/1+RS) where RS is: Average gains/ Average Loss

Settings: the most common parameter is 14 period

If the RSI is above the high line 70 it is indicating over bought conditions, over there the traders start looking to enter sell orders, and when the indicator is under the 30 of is range is to be over sold so they will be looking for long positions.

The RSI indicator is most effective when used in middle to large charts such as daily and weekly, but because is very effective indicators many average traders use it in as low as one minute charts.

Method of using this indicator: It is mainly used to Identify over brought and over sold conditions as well as a tool to ID the divergences and convergences but it can also be used to evaluate trend continuation status.



Trend Continuation condition

Despite the indicator is very respected by many high ranking traders it should not be used alone to make trade decisions, it is recommended to use it with about 3 other indicators to filter potential wrong entries.

It versatility to filter potential pit falls of wrong entry signals makes this indicator “a most have” in my set of daily use indicators.

I hope that this information come to be helpful, and please think that keeping simple and clean your chart will let you see better the possible entries for your orders

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