News & Analysis at your fingertips.

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.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
EUR/USD
Bearish
Oil - US Crude
Bearish
Wall Street
Bearish
Gold
Bearish
GBP/USD
Mixed
USD/JPY
Bearish
More View more
Real Time News
  • China A50 Index, which exhibited little correlation with the US stock market in the past, rose more than 1% to 15,900. An immediate resistance level can be found at 16,000 (chart below). https://t.co/Zxsh0wUpV7
  • Wall Street Futures Update: Dow Jones (+1.125%) S&P 500 (+1.103%) Nasdaq 100 (+1.087%) [delayed] -BBG
  • Technical indicators are chart analysis tools that can help traders better understand and act on price movement. Learn more about the importance of technical analysis here: https://t.co/NpC1D8y4Aa https://t.co/7mYrLT7zcL
  • 🇯🇵 Consumer Confidence (OCT) Actual: 33.6 Previous: 32.7 https://www.dailyfx.com/economic-calendar#2020-10-29
  • Heads Up:🇯🇵 Consumer Confidence (OCT) due at 05:00 GMT (15min) Previous: 32.7 https://www.dailyfx.com/economic-calendar#2020-10-29
  • Fear has reared its ugly head this past session. Will a fire burn when for risk assets like the Dow even as attention is drawn forward to next week's Presidential election? I discuss my views in today's trading video: https://www.dailyfx.com/forex/video/daily_news_report/2020/10/29/Dow-and-Nasdaq-Enter-Technical-Corrections-Dollar-Plays-Safe-Haven-Ahead-of-GDP-and-FAANGs.html?ref-author=Kicklighter&QPID=917719&CHID=9 https://t.co/KYexqG2pEa
  • IG Client Sentiment Update: Our data shows the vast majority of traders in Ripple are long at 96.86%, while traders in NZD/USD are at opposite extremes with 69.17%. See the summary chart below and full details and charts on DailyFX: https://www.dailyfx.com/sentiment https://t.co/yOLbxwOKhF
  • The Indian #Rupee may weaken following a breakout higher in $USDINR over the past 24 hours. Despite rising global stock market volatility, the #nifty50 has been holding its ground. Could it capitulate lower? - https://www.dailyfx.com/forex/technical/article/special_report/2020/10/29/Indian-Rupee-Nifty-50-Forecast-USDINR-Breakout-as-Volatility-Spikes.html?CHID=9&QPID=917702&utm_source=Twitter&utm_medium=Dubrovsky&utm_campaign=twr https://t.co/GPQSQMvUsn
  • Forex Update: As of 04:00, these are your best and worst performers based on the London trading schedule: 🇦🇺AUD: 0.28% 🇨🇦CAD: 0.24% 🇬🇧GBP: 0.16% 🇨🇭CHF: 0.10% 🇪🇺EUR: 0.07% 🇯🇵JPY: -0.15% View the performance of all markets via https://www.dailyfx.com/forex-rates#currencies https://t.co/YuqROnNqY7
  • Indices Update: As of 04:00, these are your best and worst performers based on the London trading schedule: US 500: 0.95% Wall Street: 0.95% France 40: 0.56% Germany 30: 0.46% FTSE 100: 0.27% View the performance of all markets via https://www.dailyfx.com/forex-rates#indices https://t.co/kACR087bkv
How to Use RSI in Extended Markets To Time Entries

How to Use RSI in Extended Markets To Time Entries

2014-09-11 03:00:00
Tyler Yell, CMT, Currency Strategist
Share:

Talking Points

-The Purpose of Oscillators like RSI

-When Traders Have a Hard Time Trading With RSI

-How to Use RSI in Extended Moves

When new traders come into the Foreign Exchange Market, they often look for a simple to indicator to use. Some like to turn to moving averages to identify trends, whereas others like to see when markets are hot and cold with the use of an oscillator. One of the most popular oscillator’s is the RSI.

The Purpose of Oscillators like RSI

How to Use RSI in Extended Markets To Time Entries

The Relative Strength Index (RSI) is probably the most commonly known and used technical oscillator as it can identify when a market is “overbought” or “oversold” as told by the oscillator’s extreme ranges. As an oscillator, RSI is plotted with values between 0 and 100. The value of 70-100 is considered overbought and a reversal to the downside is likely whereas the value of 30-0 is considered oversold and a reversal to the upside is to be expected in a range.

Learn Forex: In a Clean Range, the RSI Is Hard to Beat

How to Use RSI in Extended Markets To Time Entries

Presented by FXCM’s Marketscope Charts

The rules above work best in a range bound market like USDJPY during the early half of 2014, the RSI extremes worked well for the “buy low, sell high crowd”.

Looking at the chart above, you’d be in line to think that the RSI looks like an ideal tool for FX Traders. To some degree, the RSI is a great tool but to see the RSI only as a buy low, sell high tool can be difficult when markets break out when the tradition rules are applied however, a game plan that is too simplistic can do more harm than good. Too simplistic means that the traditional measure of “buy when below 30 or breaking above 30” and “sell when above 70 or breaking below 70.”

When Traders Have a Hard Time Trading With RSI

Sometimes, markets break out into a strong trend. In fact, according to Elliott Wave, the first breakout is usually just the beginning of multiple moves higher with the potential of an extended leg of the uptrend. As you can imagine, if the market has broken out higher, then a selling an overbought market is very dangerous. This is especially true if you do not manage your risk on a trade.

If you’re uncomfortable with the concept of Trade Management so that you don’t let one trade sidetrack your trading goals you can register for our FREE online course here.

Learn Forex: When the Range Broke, RSI Remain Extreme Lacking Traditional Signals

How to Use RSI in Extended Markets To Time Entries

Presented by FXCM’s Marketscope Charts

A new trader who has learned about RSI would likely be very frustrated after the last year of price action on the USDOLLAR index. The prior 7 months before the chart shows consistent overbought readings while USDOLLAR traded up for all of 2013 until July 2013 when in turned south harshly. If you recognized the downtrend and then waited for a break above 70 to sell USDOLLAR, you never got the opportunity until 13 months later when USDOLLAR flashed an overbought signal and has since gone parabolic.

How to Use RSI in Extended Moves

When you find a strong trend unfolding, it’s best to adjust how you use RSI. A helpful way to adjust your use of RSI is to change what you define as oversold and overbought. In a strong uptrend, oversold may be as little as 40-50 range and in a strong downtrend, overbought and therefore an opportunity to sell or load into a trade may be as low as 50-60 before the downtrend resumes.

Learn Forex: XAUUSD Multi-Year Downtrend Has Given Few Signals with Traditional Readings

How to Use RSI in Extended Markets To Time Entries

Presented by FXCM’s Marketscope Charts

The highlighted circles show signals to sell based on lowering your overbought qualification. When you’ve done this, you can place your stop a few ATR above your entry or the prior swing high if less than that level. The examples shown above are on daily charts but you can use this adjusted range to increase your RSI effectiveness in strong trends on intraday charts as well.

See Also:

New Ways to Trade Forex with the Popular RSI Oscillator

Four Highly Effective Trading Indicators Every Trader Should Know

Happy Trading!

---Written by Tyler Yell, Trading Instructor

To contact Tyler, email tyell@dailyfx.com

To be added to Tyler’s e-mail distribution list, please click here

Tyler is available on Twitter @ForexYell

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

DISCLOSURES