A trend indicator that uses the oscillator analogue of RSI and its signal line.
It is drawn as a colored cloud.
Author: Nikolay Kositsin
Forum on trading, automated trading systems and testing trading strategies
newdigital, 2014.02.03 06:42
Relative Strength Index (RSI) in Forex Trading (based on dailyforex article)
The Relative Strength Index (RSI) is a momentum oscillator, which is
used for technical analysis in the forex market. Momentum oscillators
such as RSI are usually used in a ‘sideways’ or ‘ranging’ market, where
the price moves progressively between the support and resistance levels.
It is a leading indicator, and hence used on account of its wide
applicability. It is usually calculated for 14 periods, although the
number of days or other period in question can be modified to suit a
trader’s specific style.
Overbought and Oversold
Like other momemtun oscillators, RSI moves in a predefined range,
although the signal lines are considered to be the 70% (overbought) and
30% (oversold) lines. The overbought region refers to a situation where
the market has moved into significant buying pressure, relative to the
recent past. It often signals that an upward trend is about to come to
an end. Similarly, the oversold region refers to the lower region, which
suggests significant selling pressure relative to the recent past, and
is indicative of an end to a downward trend.
Basic Trading guidelines