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.
𝐑𝐒𝐈 (Relative Strength Index) is an index used to chart the current and historical strength of a financial market. It is measured from 0 to 100, with high and low levels being marked as 70 and 30 respectively. 𝐎𝐯𝐞𝐫𝐛𝐨𝐮𝐠𝐡𝐭 conditions could lead to a decrease in price and 𝐨𝐯𝐞𝐫𝐬𝐨𝐥𝐝 conditions could lead to an increase. KEY TAKEAWAYS
The common levels to pay attention to when trading with the RSI are 70 and 30.
An RSI of over 70 is considered overbought. When it below 30 it is considered oversold.
Trading based on RSI indicators is often the starting point when considering a trade, and many traders place alerts at the 70 and 30 marks.
When the alert is triggered, the trader will examine the validity of a trade.
The RSI can give false signals, and it is not uncommon in volatile markets for the RSI to remain above the 70 or below the 30 mark for extended periods.
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