The RSI oscillates between 0 and 100% and most traders use values below 30 for the oversold zone and values above 70 for the overbought zone. There are also Forex traders taking the limits of 20 and 80. Usually, the RSI in combination with other indicators used as confirmation. RSI is an indicator for the short-term investor.
There are several ways to use signals from the RSI.
It may be well that technical analysts have knowledge from RSI. Drawing lines is an unpleasant movement which can affect your muscles. But in the technical analysis the relative strength index (RSI) is something else.
The first option is trading in the oversold and overbought areas where RSI peaks and valleys shows. Incidentally, this gives quite a lot of signals.
In an overbought zone gives a sell signal when the RSI line crossed the 70% line.
The RSI measures the strength (relative strength) of price changes of a fund over a course of time (usually 14 days).
The RSI indicates the degree of buying and selling to.
Welles Wilder
The RSI was developed by J. Welles Wilder in 1978 and it is a popular indicator. The indicator share where the market is too much bought or too much sold. The value of the RSI is between 0 and 100. If the value of 30 or lower, the proportion is 'oversold' and the advice is buy. When the value is 70 or higher, then the signal is 'over bought' and is the sell opportunity.
RS = (the average of the values of the gains of the closing prices of each two consecutive days in a period of N days) divided by (the average of the values of the falls of the closing prices of each two consecutive days in a period of N days)
RSI = 100 - (100 / (1 + RS)) as a percentage between 0 and 100%.
Support and resistance
The RSI is usually combined with support and resistance. Collides price against a resistance (the top line of the
connecting peaks) and the RSI 70 this is to set a clear signal to secure your profits: the proportion according to the RSI indicator already bought a lot and thus will have trouble getting out. Market price moves around the support line (the bottom line connecting the bottoms with each other) and the RSI 30, then that is a buy signal. Indeed, the RSI indicates that many have sold.
The second common method is to detect positive and negative divergences between the RSI with market price.
When the RSI falls at a rising level we have a sell signal and
when the RSI rises at a decreasing level we have a buy signal.
