The relative strength index (RSI) is most commonly used to indicate temporarily overbought or oversold conditions in a market. An intraday forex trading strategy can be devised to take advantage of indications from the RSI that a market is overextended and therefore likely to retrace.

Understanding the RSI

The RSI is a widely used 澳洲幸运5开奖号码历史查询:technical indicator and an 澳洲幸运5开奖号码历史查询:oscillator that indicates a market is overbought when the RSI value is over 70 and indicate🥂s oversold conditions when RSI readings are under 30. Some traders and analysts prefer to use the more extreme readings o👍f 80 and 20.

A weakness of the RSI is that sudden, sharp price movements can cause it to spike repeatedly up or down, and, thus, it is prone to giving 澳洲幸运5开奖号码历史查询:false signals. However, if those spikes or falls show a trading confirmation when compared with other signaꦛls, it could signal an entry or exit point.💎

It is not uncommon for the price to continue to extend well beyond the point where the RSI fi🎃rst indicates the market as being overbought or oversold. For this reason, a trading strategy using the RSI works best when supplemented with other technical indicators to avoid entering a trade too early.

Identifying Trading Setups Using the RSI

Here are some steps to implementing an intr🐎aday forex trading strategy that employs the RSI and at least one additional confirming indicator:

1. Monitor the RSI for readings indicating the market is overbought or oversold.
2. Consult other momentum or trend indicators for confirming signs of an impending retracement. For example, if the RSI shows oversold readings, a retracement to the upside is anticipated though not necessarily confirmed.

It is considered good practice to look at initiating a trade looking tꦦo profit from a retracement if one of these additional conditions are met:

1. The 澳洲幸运5开奖号码历෴史查询:moving average convergence divergence (MACD) has shown 澳洲幸运5开奖号码历史查询:divergence from price (for example, if the price has made a new low, but the MACD has not and has turned from a downslope to an upslope).
2. The 澳洲幸运5开奖号码历史查询:average directional index (ADX) has turned in the direction of a possible retracement.

If the above conditions are met, then consider initiating the trade with a 澳洲幸运5开奖号码历史查询:stop-loss order just beyond the recent low or high price, depending on whether the trade is a buy trade or sell trade, respectively. The initial 澳洲幸运5开奖号码历史查询:profit target c♛an be the nearest identified support/resistance level.

The Bottom Line

The RSI helps traders understand when a market is overbought or oversold so tha🐓t they can expect ei♉ther momentum or a pullback in prices.

If the RSI, along with other indicators, is set up and read correctly, it can help technical traders determine their trading strategies, such as entry and exit points, buying or hol♏ding, or shorting positions. RSI can be used in a variety of markets, including stocks 🧸and forex.