Relative Strength Index

 

If applied on a metatrader 4:

 

 

About its use, RSI can we use to know the following things:

1 positive/negative Divergence

2 the Momentum of price movement

overbought/oversold Conditions 3

But among these three usability above, the usefulness of the first clause is most often used by traders mainly because of the simpleness of RSI interpretation thus unbiased between one trader with other traders.

Ways of identifying overbought/oversold conditions with RSI is very simple. Simple but not necessarily easy. A general rule that applies is overbought conditions is obtained when the RSI line cut 70 and oversold when the RSI line 30 cut. Some books also recommends 20 to 80 as the limitations of OB and OS. Could be for a particular currency in certain circumstances limit overbought/oversold is at 40-60, so hinge where appropriate. Yet again have to do trial and error. However as little guide, RSI will be increasingly accurate use on the market conditions of efficient and stable. Until now, the forex market is a market which is the most stable and efficient in his movements (prices are determined by the market and highly liquid investments). So, more or less 30-70 restrictions still apply here though is not absolute.

Pay attention to the following chart:

 

In the above images, part diraster in yellow is the area of the OB and the OS on the RSI is above 70 and below 30. Note When the RSI is at these areas the price will soon be turned back as in the given circle. About how to price applies when the situation occurs, the OS and OB we have studied it in chapter 3 in this Lamb Walking classes. Wuah interesting isn't it? An indicator capable of knowing when prices turn around! Grateful kasihlah on J.W. Wilder for this.

The Centerline Crossovers

As well as on the MACD can be used to measure the power of momentum increase/decrease price, RSI can also be used in the same untukhal. Does it matter if the MACD crossover occurs at the zero line and RSI on line 50.

How to read the power of momentum a price the same as on the MACD i.e when the RSI broke through the centerline (line 50) from under the rising trend is taking place. The magnitude of the momentum is proportional to the value of RSI is happening. This also applies vice versa. Let's clarify with a single image:

 

 

Note the part marked in red circles. Appears when the RSI also touched the centerline from the bottom upwards then the price moves up and vice versa when the RSI broke through the centerline of the top to the bottom so the price tends to lead to a fall. There are certain situations where the signal is not valid because it is a false signal on RSI which we will discuss at the subtitles after this. But with the centerline of this crossover it will greatly help us in determining the condition of buying and selling.

False Signal on RSI

Do not use as an indicator of RSI You without reading this section first!! Why? If you are careful enough to pay attention to the pictures presented above is surely some of you ask, why there are some circumstances where what is said is different from the circumstances that the RSI is actually?

This is called a false signal signal false aliases. If we follow the formula of the RSI at first can we know bawha is basically the RSI moves with very sensitive. A sensitive indicator enables us to have a lot of "suggestion" in order to Buy/Sell according to the indicators in question. That's the upside. However it also became at once the boomerang for us due to the growing number of the suggestion that there will be more opportunity for misleading argument that ensued brought huge losses.

By many chartist, RSI is not used alone as a leading indicator because of the nature of that sensitifnya. RSI is more often used as a reinforcing the suggestion by other indicators.

And is there any way to eliminate the false signal on the RSI or at least mitigate the artificiality of the RSI is this? There Are. Of course there is. The simplest way is to find the best periods in the RSI shall we use. As we know that the greater the period with an indicator of the nature of sensitivity will be more bekurang. This also applies on the RSI so we can use RSI with a period of slightly more than usual that is 14. Or can also use periods above it, for example the period 18.

  

You can see in the picture above how RSI period 18 (blue) looks more sluggish in accommodating the currency movements as compared with the standard period that is 14.

Well, the period of which one fits you, please specify according to the tastes of each. Learn Forex yourself if want to use RSI period typically use 10 or 14, but I return again to you as a reader.

The other way again is less sensitivity RSI with trim parts too frizzy. RSI How to give a final on the RSI uses the SMA.

 

 

In the image above I used SMA 3 period to smooth the RSI that is too curly. To see that the graph is now smoother and we simply pay attention to HIGH SCHOOL on the RSI alone to know the conditions of the OB and the OS on the RSI. In the use of SMA on the RSI, should be understood to do not use a period greater than 5 because it will undermine the primacy of RSI itself i.e. sensitifitasnya. So, just use a period of 1-5 from high school only.

 

Refinement graph is very useful for the RSI indicator can often "just dropped in" a moment on the area of OB and OS or penetrate the centerline only for a moment only. In the circumstances of the case, the HIGH SCHOOL will be at containment so that the curve becomes smoother.