RSI Forex Trading Strategies

There are various ways that a forex trader can use the RSI indicator for his forex trades. Remembering that no one indicator is perfect on it’s own, the examples below are the various ways the forex traders can use the RSI to their trading advantage.

1. Buy on RSI From Oversold Territory.

Most forex system use the RSI as a trading signal to figure out when a currency is in either oversold or overbought territory. Depending on the forex trading system, overbought is either above the 70 or 75 region and oversold is below the 25 or 30 region. But signals are triggered in the 30 region and sell signals are triggered in the 70 region.The best option if you are buying using the RSI is oversold territory is to wait until the RSI  is moving out of the oversold region as it’s a better sign of a bullish forex market.

The chart below shows a trade where the RSI(9) moved out of the overbought section and signaled a sell signal .This particular trade held for the rest of the trading session.

2.Buy/Sell when RSI Stalls at the 50 Line

Most professionals forex traders love trading retracements during a strong move or trend . It is also common for the RSI in such situations not to cross either the 30 or 70 line .Instead, most professional forex traders wait for the RSI to dip to or slightly below the 50 line and figure out if it is a buying opportunity.

In this particular forex trading situation, the 50 line in the RSI  is used as support and resistance. The retracement would start when the RSI bounces of the 50 line and normally occurs during a good trend move .In the example below, the up trend in the usdchf was strong and the forex trader could have entered the up trend when the RSI hit and bounced back from the 50 line.

3. Buy/Sell Based on RSI Trend

The 50 line in the RSI can also be used as a trend indicator. This is especially used with the RSI having a longer look back period than 14. Some systems use RSI 45 for this. The idea is that the area above the 50 line signals a bullish signals and the forex trader should only consider buys. The area below the 50 line should encourage to forex trader to only consider sell signals.

In the chart above, you can see that the RSI(9) stays above the red 50 line for the whole up trend. A forex trader could have exited the market at the end of the chart when the RSI went below the 50 line in the trading session.

 

4. Technical Analysis Patterns in the RSI

One can also use the regular technical analysis patterns on the RSI. You can draw trend lines, support and resistance lines on your RSI chart section. The only problem is that this can be rather tedious on some forex charting packages. However, some charts like fibonacci trader can draw such support and resistance lines and even include moving averages on your RSI chart panel.

All in all though the RSI is a great momentum indicator, a trader should not rely it exclusively for all their signals. However, learning how to use it and interpret it would make your forex trading experience more enjoyable and profitable.

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