What is RSI?
The RSI is a Relative Strength Index that indicates how strong is the trend and helps to predict the possible reversal of the trend. It is estimated as follows: the price growth during a given time is summed up and divided by the total of price decreases over the same period.
The results are displayed on the graph from 0 to 100 percent. If all the candles during a certain time are green, the value of the RSI will be 100 percent. In the opposite situation, when all the candles are red, the value will be 0 percent.
The RSI period and oversold/overbought values
The period of the indicator is simply the number of candles taken into account for the calculation of the percentage. The default period of the RSI is set for 14. You can change it by clicking a pen icon in the indicator window. Furthermore, you can adjust the color and thickness of the RSI line.
The overbought and oversold areas are set for 70 and 30 percent. The precision of trading signals improves when the indicator is in the overbought or oversold areas that is when the percentage exceeds 70 or 30.
How to use the RSI
Your main task is to observe the RSI line. When it crosses 70 percent it enters the overbought zone. The prices were rising rapidly and they will soon fall. When the indicator intersects the lower band of 30 percent, it gets into the oversold area. The prices were falling too much and now they are about to rise.
I recommend that you familiarize yourself with the article about divergences on the RSI and about combining RSI with Bollinger Bands. You can find it to be an interesting way to use the RSI indicator at Olymp Trade.
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