RSI Currency Trading Strategy – Bullish and Bearish Divergence

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RSI Currency Trading Strategy – Bullish and Bearish Divergence

The Relative Strength Index (RSI) an indicator most traders are familiar with; it is an oscillator that measures the strength of price movements by monitoring the closing prices.

It is often used in a very simple fashion with reference lines 30 and 70 acting as over-sold and over-bought levels respectively. However, there are other signals that can be drawn from RSI analysis. For those day traders out there the Bullish and Bearish Divergence strategy on a 15 minute or 30 minute candle chart may be useful to you.

It involves comparing the price pattern with the RSI pattern. When the price falls to the previous low or lower but, at the same time, the RSI line makes a more shallow bottom than during it’s previous decline this is Bullish Divergence and acts as a signal to buy.

You should only buy once the RSI line turns up from it’s bottom and place a protective stop below the lastest minor price low. Bearsih diverence is the exact opposite; when the price rises to the previous high or higher but the RSI makes a lower top than during it’s previous rally this acts as a signal to Sell.

You should only sell once the RSI line turns down from it’s top and place a protective stop above the latest minor high.


Zoe Fiddes, easy-forex UK branch manager.



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3 Responses

  1. max says:

    hi ,
    i would like to know about this rsi, especially when trading currencies ,what is the best link-website to learn more in detail of this rsi ,is this enough just by looking the overbought /oversold criteria to enter a trade or is there any other detail that one need to complement the rsi ….i mean the highest percentage confirmation to enter a trade what else other than rsi …..thanks…

  2. GreatTradingSystems says:

    This site. Maybe the forum at Livecharts.co.uk but really use RSI will not give you a statistical edge. It may help in trading but really trading is about the numbers (strike rate, risk reward ratio etc) not the indicators.

  3. (paul(Learn Relative Strength Index Forex trading system) says:

    Good information and I agree with the second comment. Statistical data can be gathered for divergences however as well as reversal signals on RSI (as from Andrew Cardwell). This data will show that reversal signals actually perform better.
    Thanks,
    Paul

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