In today’s guide, I will walk you through the RSI indicator on Expert Option.
- What the RSI indicator?
- How does it work?
- How to set up an RSI indicator on an Expert Option trading account.
- RSI trading strategies on Expert Option.
If you are seeking answers to any of the above questions, welcome. You are in the right place.
Let’s dive right in, shall we?
What is the RSI indicator?
RSI is an acronym of the Relative Strength Index.
This is an indicator used to measure the financial market momentum as well as the magnitude of the recent price actions to determine whether an asset is overbought or oversold.
On your Expert Option trading chart, the RSI is displayed as an oscillator, that is, a graphical line moving between two extremes. And it is calibrated with readings from 0 levels to 100.
Who developed the RSI Indicator?
The RSI indicator was developed by a renowned trader by the name J. Welles where he discussed it in his 1978 book, New Concepts In Technical Trading Systems.
Typically, the RSI indicator is made of two lines:
- Upper line (70) – this is the overbought zone.
- The lower line (30) – indicating oversold zone.
How does the RSI indicator work?
The big question we are trying to answer under this section is what the RSI indicator says to traders?
As mentioned earlier, the RSI helps determine the market momentum; visibly showing results between the 0 and 100 levels.
For RSI readings of 30 and below, this is an indication of oversold markets.
And if an asset is at the oversold zone, there is a higher chance of a trend reversal. This means you should be ready to enter a buy position.
Conversely, when the RSI is showing readings of 70 and above, it is a sign that the underlying asset is overbought and thus there is an increased possibility of the price dipping.
As a trader on Expert Option, whenever you see an overbought asset, it is a signal that the uptrend is losing momentum and will reverse soon. Open a sell position or prepare to exit the trade if you were riding the BUY trend.
Additionally, the RSI indicator on Expert Option can be used to determine centerline crossovers.
What are RSI centerline crossovers?
Besides the two lines on the RSI indicator (70% and 30% lines), there exists a centerline. Commonly shown as the 50% mark.
Now, a rising trend is signaled by movement from below the centerline (50) continuing above the line.
When this happens, it gives you a rising centerline crossover.
Here, the RSI line crosses the centerline from below and moves up towards the 70 line.
This is a signal that the market trend is gathering momentum, therefore, a bullish signal is born.
On the other hand, when the movement from above the 50 line moves towards the 30 line, that is a sign of a downtrend.
This is commonly known as a falling centerline crossover.
Here, the RSI line crosses the centerline (50) from above and continues moving towards the 30 line. Traders take this as an indication the market trend is losing strength, and therefore it is a bearish signal.
There you have it, how to interpret the RSI indicator’s signals.
Up to this point, you are ready to start trading on Expert Option using the RSI. But, can you use the RSI without adding it to your trading chart? I doubt.
How to set up the RSI indicator on Expert Option.
To perform the following steps, you need to be logged in to your trading account.
- Locate the indicators tab on the top-right corner of your trading chart and click on it.
- You will see a window showing all the indicators. Choose the RSI.
- And the indicator’s setting window will pop up. Here is where you can introduce custom changes to the RSI indicator, specify the period, the overbought level, and finally the oversold level. But I recommend you leave as it is.
- Click on the Apply button to add the indicator to the trading chart.
And that, buddy, is how to setup RSI indicator on Expert Option.
To this point, you have learned how to interpret the RSI signals. But the unanswered question is, how do you profitably trade these signals?
Continue reading to learn more.
How to trade on Expert Option using the RSI.
The RSI Sell signals.
When the RSI is reading 70 or higher, it is a sign of an overbought asset. This means, the asset is selling at the price beyond the market expectations and it is only a matter of time before it reverses.
With such prevailing market conditions, you should be readying for a sell position.
The RSI Buy signals
When the asset is trading below the 30% level, it means it is oversold. As such, a trend reversal is imminent.
Enter a buy position.
Determining trends using the RSI.
In addition to determining the oversold and overbought signals, use of the RSI indicator to determine prevailing trends in a market.
If you suspect a trend is forming, conform with the RSI. Is it above or below the centerline (50)?
If there is an uptrend, the RSI will be above the 50.
On the other hand, if there is a downtrend, the RSI will be below 50.
Take this precaution though:
There is a possibility of a fake-out.
To avoid this, wait for the RSI to cross the 50 line (up or down).
The information provided does not constitute a recommendation to carry out transactions. When using this information, you are solely responsible for your decisions and assume all risks associated with the financial result of such transactions.