What is RSI?
RSI is the short form for the Relative Strenght Index. The RSI is a momentum indicator used in technical analysis that measures the speed and change for price movement.
This indicator acts just like a pendulum, which swings two and fro from lines 0 to 100.
It is a momentum indicator that helps us to identify the near-perfect buy and sell calls via overbought and oversold levels.
If you analyse the indicator properly, you will surely notice the three RSI lines of 30, 50, 70.
When the line is near 30, it means that the asset is at an oversold level. Similarly, If the line is near 70, it is recognised that an asset is at an overbought level.
How to use RSI indicator in Olymp Trade?
The best way to understand and analyse any indicator is by practising the same in a practice account. Olymp Trade offers a free practice account where you can use and analyse the indicator.
Login to your Olymp Trade account. and click on the indicator button and select RSI from the given menu.
You can also change the colour and width of the line by clicking on the pencil icon and you can also change the time frame of the RSi from default 14.
Make Buy Trade at RSI below 30
When an asset is trading at an oversold level or at line 30. It means that the market is dominated by sellers, however, not for long. Soon the trend will start to reverse and the demand for assets may increase. Therefore, You should place a buy trade whenever the asset is near the oversold level.
Make Sell trade at RSI above 70
Overbought Level is just the opposite of Oversold level. When are assets are trading near the line 70 or overbought level. It means that the asset is being dominated by buyers but very soon a trend reversal is possible and sellers could take the matters in hand.
Whenever The asset is trading near the overbought level or line 70 you need to make a sell trade.
You must be probably wondering what about line 50 right?. Well, Line 50 is important. When the line is coming from point 30 you need to make a buy trade for a short period of time as the line can soon touch the overbought level and the trend may change.
Similarly, When the line is coming from point 70 and intersects point 50 you need to take sell trade at a short period of time as the line may soon touch the oversold level and the market may reverse from the same.
Dealing with RSI Divergence
We can talk about RSI divergence. If the asset price and the indicator is moving in the opposite direction. The divergence normally takes place after the price breaks the support or resistance level.
As you can see above that the price and the indicator is moving in the opposite. which indicates that the trend reversal is inevitable.
So, this is the basic knowledge you must have regarding the RSI. You just need to remember the basic principles. However, The best way to understand the RSI is by practising the same in the Olymp Trade demo account.
If you are still are facing any issues do comment below or share your thoughts. I would really love to hear from you.