Relative Strength Index or RSI, is like Stochastics and indicates overbought or oversold market. This indicator is also calibrated from 0 to 100. Usually, values below 20 indicate oversold market and value over 80 – overbought.
Relative Strength Index or RSI
How To Use RSI in Forex trading
RSI is a very popular indicator, because he can also be used to confirm the trend. If you think the new trend is now forming, take a look at RSI. To have confirmation for new uptrend, RSI must be above 50. Confirmation for the downtrend, we have when RSI is below 50.
At the beginning of the chart above, we can see the formation of a potential uptrend. To prevent errors, we can wait for RSI to go above 50 to confirm the trend. Crossing the RSI above 50 is good enough to confirm that we have truly uptrend. Many Forex traders combine RSI and Stohastics in their Forex trading.