RSI indicator, the relative strength index, uses the sum of rising prices and the sum of falling prices within a certain period (n days) as the calculation object, and is a technical curve produced based on the calculation results.

Recommended parameters: 6, 12, 24, respectively short-term RSI, medium-term RSI, and long-term RSI

Generally speaking, the shorter the period of RSI, the higher the sensitivity; the longer the period, the more stable the trend, but the sensitivity is relatively reduced.

Classic usage of RSI

1. Overbought and oversold trading method

Oversold: A range below 20, suitable for buying

Overbought: A range above 80, suitable for selling

Operating rules:

Best buy: 20 below, 20 above

Best Sell: Above 80, Below 80

Parameters are set to 6-14-24

Overbought and oversold serve as an important reference for short-term trend judgment. When it first breaks through the overbought/sold area, it means that the trend is very strong. If it falls back from the overbought/sold area, it means that the original trend is slowly drying up.

2. RSI divergence trading method

Parameters: 6-12-24 or 6-14-24

Tip: When the peak of the K-line trend is higher than the previous peak, but the corresponding high point of RSI is lower than the previous peak, it is a top divergence;

When the K-line trend has a lower peak than the previous peak, but the corresponding low point of the RSI is higher than the previous peak, it is a bottom divergence.

Summary: Top divergence is a bearish signal; bottom divergence is a bullish signal.

RSI divergence is one of the most powerful features of this indicator. The reason is that RSI divergence is more reliable than an overbought or oversold signal itself. Typically, RSI divergence means the indicator is moving in the opposite direction compared to the price. Therefore, at the same time as the price moves, RSI will tell us in advance the change in the expected direction.

3. Golden Cross and Dead Cross trading method

Buy: When the short-period RSI crosses the long-period RSI and a golden cross signal occurs;

Sell: Short period RSI goes below long period RSI, when a dead cross signal occurs.

4. Things to note when using RSI

1. The RSI indicator may be passivated: When it is above 90 or below 10, the RSI indicator is prone to passivation, which affects traders' judgment.

2. The ineffectiveness of the RSI indicator: In the range of 40-60, the RSI indicator has little significance in judging the market.

3. The overbought and oversold range standards of RSI can be adjusted appropriately according to different currency pairs.