RSI High-Low

Indicator: RSI (14) with levels at 70 and 30
Entry rules: Buy when RSI has crossed below 30, formed a bottom, and then crossed back up through 30.
Entry rules: Sell when RSI has crossed above 70, formed a peak, and then crossed back down through 70.

Relative strength index (RSI) Explained. The RSI is used to identify an overbought or oversold position for a currency pair. It moves between a low of 0 to a high of 100. It affirms the momentum volatility which in turn suggests a directional change in the currency price. Unlike other indicators, its not prone to distortions.

It essentially serves the following purposes;

  • It is a momentum indicator, which oscillates between a scale of 0 to 100.
  • It's two basic functions to interpret price movement are the overbought/oversold levels, and divergence.
  • It also identifies price movement by forming patterns such as a double top/bottom, head & shoulders etc, when the same would not be clearly visible in the price movement. Similarly areas of support/resistance found on the RSI, prove to be more effective.
  • It would generate more precise signals when the market is in a range bound state. Here, the overbought/oversold levels as well as divergences show up more accurately on the RSI.
  • When price is trending, it would give false signals since it remains in the overbought/oversold state for an extended period of time.

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