Relative Strength Indicator - What Does It Mean To Your Forex Trading?

Whether you are a veteran trader, or a just learning the ropes, educating yourself about the key concepts of the Relative Strength Indicator (RSI) index is one of the most important things you can do to become a successful trader. This concept is an easy one to learn, but details on it are scant. You'll have to search for material about it, or you can read the basics here.

One of the first things you should know is that incredibly incorrect information regarding the Relative Strength Indicator is posted on almost every Forex website. Some of the most common myths are to sell when the RSI reaches 70 (since this supposedly means the currency is overbought at that price), to buy when the RSI hits 30 (because currencies are supposedly oversold at that price), and that when the RSI reaches 50, this is a good spot to enter the market. All of these are myths, and wildly incorrect. You would do well to learn the proper information, so you can profit from it, rather than wasting your money on bad trading advice.

Even though there are a lot of myths regarding the RSI out there, it is still an excellent tool to use in your trading. This is because the RSI takes time, momentum, and price of the market into consideration, it has four signals that can be used to bring you profits, and it gives you insight into current market conditions.

The four signals that the RSI uses to alert you to profit opportunities are Positive and Negative Divergences and Positive and Negative Reversals. Reversals are best for knowing when to enter the market, and divergences are best to predict coming reversal points. RSI can really show you with great accuracy where the price of a currency is going, and if you take time and momentum into consideration with this, then you can really stand to profit well. Most traders who make consistently good profits use the Relative Strength Indicator index all the time, because it can provide so much information. Because information on the RSI is scarce, if you take the time to learn it, you will be putting yourself head and shoulders above the rest of the Forex traders out there who do not use it. It will give you an edge. As we all know, when it comes to Forex trading, any edge you can get stands to benefit you, because so many people jump into this market not knowing anything at all about how to profit in it. If you know RSI, you're almost bound to make some money.