The relative strength index (RSI) is a momentum indicator used in technical analysis that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the price of a stock or other asset. The RSI is displayed as an oscillator (a line graph that moves between two extremes) and can have a reading from 0 to 100. Typically, readings of 30 or lower indicate oversold market conditions and an increase in the possibility of price strengthening (going up).
Some traders interpret that an oversold currency pair is an indication that the falling trend is likely to reverse, which means it’s an opportunity to buy.
Readings of 70 or higher indicate overbought conditions and an increase in the possibility of price weakening (going down). Some traders interpret that an overbought currency pair is an indication that the rising trend is likely to reverse, which means it’s an opportunity to sell.
RSI is a very popular tool because it can also be used to confirm trend formations.
If you think a trend is forming, take a quick look at the RSI and look at whether it is above or below 50.
If you are looking at a possible UPTREND, then make sure the RSI is above 50.
If you are looking at a possible DOWNTREND, then make sure the RSI is below 50.
Some traders interpret that an oversold currency pair is an indication that the falling trend is likely to reverse, which means it’s an opportunity to buy.
Readings of 70 or higher indicate overbought conditions and an increase in the possibility of price weakening (going down). Some traders interpret that an overbought currency pair is an indication that the rising trend is likely to reverse, which means it’s an opportunity to sell.
RSI is a very popular tool because it can also be used to confirm trend formations.
If you think a trend is forming, take a quick look at the RSI and look at whether it is above or below 50.
If you are looking at a possible UPTREND, then make sure the RSI is above 50.
If you are looking at a possible DOWNTREND, then make sure the RSI is below 50.