The RSI is one of the most popular oscillators which perfectly works on different market conditions and help us to define exact entrance points.
Why do we need it?
- Defines the reversal/pullback points.
- Defines the trend strength.
How to use it?
- Choose the “Relative Strength Index” from the list of indicators.
- Without changing the settings, click “Apply”
How does it work?
The RSI (Relative Strength Index) is a technical indicator and an oscillator following the price movements that ranges between 0 and 100. The RSI belongs to a group of the most popular oscillators. It is equally good for the market trends and the sideways moves. The RSI compares the latest asset price rise to the price fall and provides this information as a figure in the range from 0 to 100.
Overbuy (the indicator level is above 70%) – the market went up above the normal level and we are expecting the price will move down soon.
Oversell (the indicator level is below 30%) – the market went down below the normal level and we expecting the price will move up soon.
The RSI Strategy
- Apply the RSI indicator to the chart and choose a 26 period setting.
- Wait for a moment when the indicator clearly shows overbuy or oversell:
- Overbuy – the indicator level is above 70% a trend reversal signal for buying the put option. .
- Oversell – the indicator level is below 30% a trend reversal signal for buying the call option.
Advanced application of the indicator:
- Divergence. The divergence signal is received in case of discrepancy between new highs or lows on the oscillator chart and the price. If the new high on the oscillator chart is below the previous one, while a new high on the price chart is above the previous one, we see discrepancy between the oscillator and the price. This signals upcoming uptrend reversal and subsequent sales. 2. Graphic patterns. Graphic patterns are often formed on the RSI chart (classic patterns) and are used by the traders for analyzing the price charts. .
- Graphic patterns. Graphic patterns are often formed on the RSI chart (classic patterns) and are used by the traders for analyzing the price charts.
- Support and resistance levels . on the RSI are often more clear than those on the price charts. Defining points following the max and min values of the oscillator.