Understanding the Relative Strength Index

Posted in US | Trade Tap Blog | Trading Knowledge
6 minute read
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Interested in using the Relative Strength Index to improve your trading strategy? This introductory guide will teach you what the RSI is, how to interpret its signals and insights into using RSI in different market conditions.

What is the Relative Strength Index (RSI)?

What is the Formula for Calculating the RSI?

How to Use the RSI?

Example of the RSI Behavior in “Overbought/Overvalued” Territory

XAUUSD_2024-07-12_08-51-20
Source: TradingView.com

Below we have an example of the RSI behavior when it is in “Oversold/Undervalued” territory.

XAUUSD_2024-07-12_09-34-00
Source: TradingView.com

How to Use the RSI for Trend Identification?

XAUUSD_2024-07-12_10-10-05
Source: TradingView.com
XAUUSD_2024-07-12_10-29-49
Source: TradingView.com

RSI Settings and How to Adjust Them

Adjusting the RSI Settings and Parameters

The chart below provides a view of the EUR/USD H1 chart with the RSI on a period 7 and period 14. As you can see the RSI period 7 is a lot more responsive to price changes.

EURUSD_2024-07-22_07-19-17
Source: TradingView.com

Advantages of the RSI

Disadvantages of the RSI

Master the RSI

Frequently Asked Questions

What is the RSI indicator?