How to Use RSI Forex Indicator

Today we going to learn about RSI indicator, RSI indicator is a technical momentum indicator and it is also lagging indicator just like other lagging indicators like Moving average indicator, MACD indicator, stochastic indicator and etc. This indicator attempts to determine the direction of the market trend, overbought and oversold market. And as you can see in the image chart in this article RSI indicator moves between zero and one hundred level, and RSI considered as overbought if this indicator moves above 70 level and tend to be oversold if RSI indicator moves below 30 level. When the RSI moves above 70 level and moves below 30 level, it tends to pullback or reverse. When the RSI indicator approaches 30 level, it is indication that maybe currency market is in the oversold and it tend to make a pullback movement to bullish and when the RSI indicator approaches 70 level, it is indication that maybe the currency market is in the overbought and it tends to make pullback movement to bearish.

The best way that I like to use RSI indicator forex beside overbought and oversold signals that generates by this indicator, We can also analyze divergence movements using RSI indicator. As you know that divergence pattern is the most powerful trading method even though most of Forex traders do not like to use it.

So what we had here in the example chart, we have got 2 areas where prices are relatively under value for oversold, and if look at it, it is likely a divergence pattern when the market price turned the direction and goes up, this is not divergence that I am going to show you. When we draw a trend line you can see the breakout and basically you can see the triangle pattern in this chart example. And You can see after couples of days the market is trending up and we can open trading position with it from the previous high. This is a good indication and a good time to get in the market. And you can see in the currency pair, the market price still moving up or bullish with couples hundreds of profits. And the market price takes me in overbought and in that moment in time you can see the momentum has decreased. But the currency pairs can be overbought for extended period of time just like in this case. So the important for you is let the profit runs. And to manage the trade, money management is the important thing in trading, you should put the stop loss and run the profit, and you can move the stop loss level. This the way how we trade this RSI Forex trading indicator.

And to manage the trade, you can follow the market and indicator movement and do some analysis. And you can see in this trading chart example, you can draw a trend line also and you can see in this example that the market break the trend line and we can set our exit trading in this level. See image below

Again we look for long trading position, we draw a trend line and we wait until the trend line broken. And you can see in the image below, the RSI indicator broke the trend line and then market price is moving bullish.

And when we see closely we can actually form a divergence pattern from this trendline. Now er have a clear divergence and the trend line break . In this area we find a support levels until the RSI indicator moves above the 70 level and go back again. In this situation you can manage the stop loss just same with support levels that you have made before when you are tracking and drawing trend lines

And if the indicator is not going anywhere or sideways movement, it is better if we do not get into the market or open a trading position. Because the market price do not have trend direction in that moment. The RSI just range bound and does not know what he doing. My suggestion is do not open a trading position in sideways trend, just step out from this chart.