RSI Forex Strategy

RSI stands for Relative Strength Index. It belongs to the class of oscillators, that is to say, it can give a graphic representation of market power. And an increase in the curve course does not necessarily imply an increase in ROI. ROI used to calculate the relative strength of the market, and so give signals overbought or oversold. If a value is defined as the oversold RSI method, this means that it is theoretically to the purchase price because it can not long remain oversold. In the opposite direction, a value will tend to see overbought RSI its fall in the near future.

Its calculation

Developed by JW Wilder in 1978, his math is pretty simple.

With: x (s): An RSI, as most of the technical indicators can be decreased depending on the time horizon of the investor. ROI in 5 days will observe changes in short-term courses. The contrary, 14 days RSI indicators will in the longer term.

  : Average increases over the period studied.

  : Average declines over the period studied.

How to use

I represented a hourly chart with the RSI EurUsd blue. When the RSI falls below 25, we can expect an increase because the RSI is oversold. Conversely, when the RSI is above 75, we can expect a decline because the RSI is overbought.

This approach is a qualified "contrarienne." Assumes that all prices do not go up forever in an uptrend and in the same way, the course will not fall forever in a downtrend. This is quite realistic, even in an uptrend, prices are subject to profit taking before rising again (or go down and change trend). Strategy "contrarienne" is in my opinion enroll in short-term perspective with respect to the time scale.

This means that on an hourly chart, I will position a few minutes to an hour or two. Monthly on a graph, I will position a few days to a month or two ...

Note: Another way to use the RSI and look for discrepancies. I will not detail this method in this article.

A winning strategy?

Should I conclude that if the RSI rises above 75, I have to sell? There are still many questions to ask yourself before making this decision.
 The advantage is that I?
 I accept the loss if it goes wrong?
 The number of lots that I bet?

I've seen often enough to mention ROI "stuck" for several hours over 75 that shorter without stop with only one reason RSI above 75 can lead to large losses.

Consider a strategy is simple, when the RSI falls below 25, I take a buy position and I is a profit of 10 Pips. If I continue down the course I take my loss ...

If the operation ends in a loss, is that the RSI has continued to decline at around 20 perhaps less. I expect that in this case they go back and the RSI back above 30 to take a new position.

If the operation ends with a gain is that the RSI rebounded somewhat. If during rebaissent, then I take position.