This means that the RVI has both positive and negative numbers, with the centreline being 0. The RVI gives information on the strength of price movement, with positive values indicating increasing How to Use RSI Indicator momentum, whereas negative values denote decreasing momentum. The RSI is the best indicator to complement or qualify the signals delivered by the RVI, especially in trending markets.

If you apply these other types of markets, like maybe GBP/JPY and if you just buy just because RSI is below 30, you’re going to suffer quite a bit. The market at the first point also had its RSI below 30, but it turned out to be a losing trade where the market rallied a little bit before it reversed lower. As I mentioned, whenever the RSI is below 30 it’s a sign to you that the market is a staging steep pullback and the last thing that you want to do is to go short. And just because the RSI is below 30 doesn’t mean you want to buy because you still want to wait for confirmation that the buyers are stepping in before you enter the trade.

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For example, in a choppier trend or sideways price range, the 200 SMA will be less reliable as a trend indicator. Here is one example of an RSI trading strategy to consider as a guideline for how to go about developing your own trading system. The below shows how to change the various settings in the FlowBank trading platform. Ranges may vary depending on the strength of a trend, price volatility, and the period of the RSI. On the daily chart of the GBP/USD pair, the RSI entered the oversold area on April 22, left it for a while on May 4, but returned to it and continued moving upwards only on May 15.

Ideally, when that happens, it is usually a sign that a major reversal is about to happen. Most traders view this situation as the best place to buy an asset. The first common approaches to use the RSI is to identify the oversold and overbought level. A financial asset is said to be oversold when it has moved so much lower.

Combined Strategy using Stochastic + RSI

You will likely encounter losses when you bet against the overall trend. It gives the right trading signals which correspond to temporary price movement. For instance, during an overall downtrend, you might get small rallies corresponding to oversold https://www.bigshotrading.info/blog/option-trading-strategies/ signals. After going long, the market will likely resume the overall downtrend leading to losses. Even though it has been established that the RSI can be used to predict price reversals, the RSI can’t determine when such reversals will occur.

Like other oscillators, the RSI helps to tell when the asset is overbought or oversold. If the RSI rises above 70 bound, it means that the market is overbought and may correct down. If the RSI falls below the 30 line – the asset is oversold and may retrace to higher levels. If the RSI is above this point, momentum is considered up and there’s more sense to look for opportunities to buy. When the RSI drops below 50, it’s a sign of a new bearish market trend, so consider opening sell trades.