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The RSI Indicator - What does it do for us?Last week we added a second moving average and reviewed how it can be used as a part of our Forex trading system. This week we explore the advantages of watching the RSI for it's signals which we will also use in our system. What is the RSI?The Relative Strength Index, or RSI for short, is a technical momentum indicator that compares the magnitude of recent gains to recent losses in an attempt to determine overbought and oversold conditions of a currency.The formula for the RSI compares the results of the "up" closes against the price of the "down" closes for a number of periods and these results are expressed as a value between 0 and 100. The measurement of this momentum is used to help judge whether a currency is reaching an "overbought" or "oversold" condition and is likely to soon change direction. You need to be aware that a currency can remain in an extremely overbought or oversold condition for a long time during strong trends. The RSI is only a Part of the SystemFor now, have your software show the RSI, set to it's standard settings and just observe how the RSI's graph corresponds to the price action.The RSI is seldom used by itself, but is most often used with other indicators. We will cover a complimentary indicator next week and I'll show you how they can be tweaked used together in our system. Wishing you trading success,
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