Forex Trading Relative Strength Indicator (RSI)

The relative strength indicator (RSI) shows if a currency is overbought or oversold.

Forex trading charts display the currency price that can be rising - with an uptrend, or falling - with a downtrend. If the currency price is on the rise it means the currency is overbought, because more and more traders buy the currency and raise its worth. If the currency price is dropping, then the currency is oversold.

Knowing if a currency price is overbought or oversold is crucial in your decision making process of investment, and this is exactly what RSI is for. The RSI is a Forex trading indicator of price fluctuations over a certain period of time.

RSI = The sum of the price that rises / The sum of all price fluctuations.

For example, if we monitor the closing prices of the EUR/USD currency pair currently worth 1.2563, we calculate the sum of rises in relation to the total sum of fluctuation- this is the RSI.

• If the RSI is 30%-70% - it is considered neutral.
• If the RSI is 25% or lower - it is considered an oversold currency.
• If the RSI is over 75% - it is considered an overbought currency.

Using the Forex trading downloadable software, you are able to RSI very easily. Even though each platform has its own division, the RSI will usually be found in the tools section. In case the software doesn’t have the RSI option, you'd better switch to another site, as it is a common and very useful tool for technical analysis.

Tania Raven, Market Analyst