We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

Free Trading Guides
EUR/USD
Mixed
GBP/USD
Mixed
USD/JPY
Bearish
Gold
Bearish
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Oil - US Crude
Mixed
Bitcoin
Mixed
More View more
Real Time News
  • Just a reminder, the White House's deadline on the auto tariff decision is due today after the extension. Stay on Twitter watch. Trump seems to like make big calls shortly after the close...
  • Heads Up:🇳🇿 NZD BusinessNZ Manufacturing PMI (OCT) due at 21:30 GMT (15min), Actual: N/A Expected: N/A Previous: 48.4 https://www.dailyfx.com/economic-calendar#2019-11-14
  • RT @ABehsudi: Commerce is expected to extend a limited, temporary waiver for blacklisted firm Huawei, notwithstanding any last-minute direc…
  • RT @zerohedge: POMO is temporary, they said. It's just a mid-September tax payment, they said https://t.co/nBeHAZ9kJc
  • $MJ: Pot stock market caps going 'up in smoke' https://t.co/q3v88TVO93
  • Indices Update: As of 21:00, these are your best and worst performers based on the London trading schedule: France 40: 0.19% Germany 30: 0.11% US 500: 0.02% Wall Street: 0.01% View the performance of all markets via https://www.dailyfx.com/forex-rates#indices https://t.co/TtF93qmxed
  • Oh, team building exercises. I'm sure that brought Knot and Holzmann around to dropping concerns about diminishing returns on negative rates and extreme monetary policy... https://t.co/5lpgsAJtbC
  • Update on #Cryptocurrencies #BITCOIN -1.15% #BITCOINCASH -2.47% #ETHEREUM -1.87% #RIPPLE -1.87% #LITECOIN -2.84%
  • RT @CNBCnow: BREAKING: The 50 attorneys general investigating Google are preparing to expand their antitrust investigation beyond the compa…
  • remaining operations will include 14-day with $35b offering
A Better Way to Use RSI to Signal When to Take a Forex Trade

A Better Way to Use RSI to Signal When to Take a Forex Trade

2013-09-20 19:15:00
Gregory McLeod, Currency Analyst
Share:
  • Forex Chart patterns used to analyze price charts can be used on the Relative Strength Index (RSI)
  • Forex Trend line breaks of RSI can predict important turning points in a currency pair
  • Forex Trend line breaks of RSI are an easy and systematic way to enter and exit the market

Traditionally, traders have relied on the Relative Strength Index (RSI) to measure the strength of a currency pair by tracking the changes in its closing price. They look to get long a currency pair as RSI moves above the horizontal 30 reference line. On the other hand, traders look to sell a currency pair after RSI moves above the horizontal 70 reference line and back below it.

Learn Forex: Traditional RSI Signals

A Better Way to Use RSI to Signal When to Take a Forex Trade

In the example above, a trader would look to enter long GBP/USD when RSI moved below the 30 horizontal reference line and then moved back above.GBPUSD moved strongly until RSI moved above 70 and fell back below generating a sell signals.

However, an overlooked method of using RSI is the use of trendlines directly on the oscillator itself in much the same way that they are used on price charts. Connecting rising swing lows in an uptrend or lower swing highs in a downtrend, traders can find excellent trading opportunities with strong risk to reward setups. Because RSI measures the surge in closing prices, when RSI changes direction and either breaks above or below a trend line, a significant move in price can result.

Learn Forex: Using RSI Trendline Breaks to Enter and Exit Trades

A Better Way to Use RSI to Signal When to Take a Forex Trade

Trendlines placed on this oscillator provide an additional level of precision as well as additional trade setups. Because the signals are leading rather than lagging, stops can be placed relatively close to the entry point. This allows for a good risk to reward trading opportunity.

In the above chart of the very same GBPUSD 4-hour chart used in the previous example, trendline breaks identified several more setups. The use of the trendline provided additional visual confirmation that a trade opportunity was near. The use of trendline breaks also gave buy and sell signals a few candles before the actual move.

RSI trend lines can be used on any chart time frame from as large as monthly and weekly to as small as 15-minute and 5-minute time frames. Traders can benefit from using RSI trendline breaks in their trading to find more timely entries with better precision.

--- Written by Gregory McLeod, Trading Instructor

Interested In Our Analyst's Best Views On Major Markets? Check Out Our Free Trading Guides Here

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES

News & Analysis at your fingertips.