Relative Strength Index (RSI)

The Relative Strength Index (RSI) is a technical indicator that measures the strength or weakness of a currency pair by comparing its upward and downward price movements over a specific time period.

RSI tracks recent price gains and losses, comparing them to the current price to gauge market momentum. It was developed by J. Welles Wilder Jr. and introduced in 1978 in his book New Concepts in Technical Trading Systems.

Aside from assisting traders in identifying price momentum it is also used to determine overbought and oversold market conditions. These conditions help traders assess whether an asset may be due for a reversal or correction. The RSI is calculated on a scale of 0 to 100:

• RSI above 70 indicates an overbought market, suggesting that the price may be overvalued and could experience a pullback;
• RSI below 30 indicates an oversold market, suggesting that the price may be undervalued and could potentially rebound.

The RSI is commonly used in conjunction with other technical indicators to confirm trends or predict potential price action. It is often set to a 14-day period, but it can be adjusted depending on the time frame being analyzed.

By analyzing its levels, traders can make informed decisions about potential entry and exit points in the market.