RSI Forex: A quick review of the market situation

What is RSI:.
RSI, or Relative Strength Index, is a momentum indicator that is used to measure the strength of a trend. RSI works by comparing the average profit and loss over a specific period. It is primarily used to identify moments of overvaluation or overestimation in the market, allowing investors to enter the market with a much greater chance of profit.

RSI is expressed on a scale of 0 to 100, with a value above 70 usually indicating overvaluation and a value below 30 indicating overvaluation. However, there are many other ways to interpret RSI values.

Use in practice:.
Here are some ways to use RSI in forex trading:

At the bottom of the chart: RSI indicator
Red dotted line: Level 70
Green dashed line: Level 30
Blue solid line: RSI level

Entry signal - The appearance of RSI values below 30 or above 70 can indicate the possibility of entering the market. When the RSI exceeds the 70 level, we expect prices to fall and can open a short position. Conversely, when the RSI falls below the 30 level, we expect prices to rise and can open a long position.

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Divergence - In the case of divergence, which is the difference between the behavior of the price and the value of the RSI, we can look for signals that the trend may reverse. For example, if the price is rising and the RSI value is falling, this could indicate a possible trend reversal and a signal to open a short position.

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Use of the neutral zone- Some traders use the RSI neutral zone (between 30 and 70) to identify the trend. If the RSI remains in the neutral zone for an extended period of time, it may indicate the absence of a trend. However, if the RSI leaves the neutral zone, it may indicate the emergence of a new trend and a signal to open a position.

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In conclusion, RSI is a very popular and effective technical indicator that can be used in forex trading. However, like any other indicator, the RSI is not perfect and requires closer analysis in combination with other indicators. Our dedicated Manticore Investments strategy is based on a combination of 3 indicators, which together provide a very effective position entry signal. We use Haiken Ashi Candles, RSI and Bollinger Bands. In future materials we will show how to apply this combination in practice.