Forex trading is not a money game. Therefore, you can learn the trading strategies to maximize the profit potentials. One of the most popular technical analytic tools used by forex traders is RSI Indicator Buy and Sell Signal. This oscillator measures the strengths of current price in comparison to those of the previous one. It can be a helpful tool as long as the trader can use the information provided by the oscillator in an optimal way.
RSI Indicator Buy and Sell Signal: Overbought vs Oversold
RSI is a momentum oscillator, as it measures the speed and changes of price. The number ranges from 0 to 100, which is used to show overbought or oversold conditions. When the value is above 70, then it is called overbought, but when value is below 30, it is called oversold. What do these values mean?
The trader may execute sell when RSI indicator crosses below 70 (overbought line). To make better prediction based on the trend, traders can vary the period. The longer the time period, the more stable the signals are, and vice versa. The time period may vary from 5 days to 14 days or even 30 days. On the other hand, when RSI indicator crosses above 50, the trader may execute buy, in case that the RSI shows increasing trend.
Other Uses of RSI Indicator Buy and Sell Signal
RSI oscillator is also used for:
Identifying the general trend;
Generating potential buy and sell signals. Traders can do this by looking for divergences, centerline crossovers, or failure swings.
Confirming price movement;
Warning of potential price reversals
In conclusion, In General, RSI indicator buy and sell signal is helpful bor both investors and traders. They can identify local tops and bottoms, learn the trend, and make informed decision on the forex trading activities.