RSI (Relative Strength Index)
J. Welles Wilder developed the Relative Strength Index (RSI), a popular momentum oscillator. Analyzing the speed and change of price movements creates an index that fluctuates between 0 and 100. The RSI is calculated based on the average gains and losses over a specific period, commonly 14.
RSI trading strategy
If a currency pair's RSI rises above 70, a trader might interpret this as a sign that the currency is overextended and could consider selling. Conversely, if the RSI falls below 30, it could be a signal to buy, anticipating a price rebound. A divergence between the RSI and price can also signal a potential trend reversal. If the price is making new highs while the RSI fails to do so, it might indicate a bearish reversal, and vice versa.