Stocks & Commodities V. 27:01 (12-13): Forex Focus: The RSI Miracle by Hadi Seyedinajad
If we had to choose just one indicator
to tradethe financial markets, it would
be J. Welles Wilder’s RSI. It does everything
you expect from an indicator.
It’s an overbought/oversold alert system,
a convergence/divergence detector,
and a momentum indicator, but it
can do even more.
The old saying amid radical technicians, that “the price chart has everything you need,” is not just a slogan. The information that we can extract from price vs. time data is amazing and I am not sure what this reflects, human intelligence or the harmony existing in the universe. By reading a price chart we must develop mathematical functions of price. These are tools to help us interpret the raw price data or extract hidden information such as momentum or market pace.
There are different ways to measure momentum, each differing in their definition and calculation. The one that you have learned to interpret and that fills a gap in your market analysis would be the one you pick for your analysis. I have selected the relative strength index (Rsi), which, in addition to identifying overbought/oversold areas, detecting divergences, and identifying momentum, also linearizes a trend.
Price tops or bottoms are not always in a relatively straight trendline. By looking at the Rsi, you’ll see that a perfect trendline often manifests itself. In this article I will present examples using the currency markets.