The Relative Strength Index (RSI), shown in Figure 1, is a momentum oscillator that compares the magnitude of recent raises in price to recent drops in order to help traders identify overbought and oversold conditions in the market. The RSI, developed by technical analyst J. Welles Wilder, first appeared in his self-published 1978 book, "New Concepts In Technical Trading Systems" and in the June 1978 issue of what was then called Commodities magazine (now Futures magazine).
Figure 1: The RSI indicator applied to a daily chart of the EUR/USD currency pair.


The RSI typically appears below the price chart (in a sub chart) and is displayed as a curving line. The RSI oscillates between values of zero and 100; a security is generally considered overbought when the RSI is above 70 and oversold when the RSI values fall below 30. Often, horizontal threshold lines are added to the indicator to help traders identify these overbought and oversold levels.

The simplified calculation for RSI is as follows:



Where:
RS = Average Gain/Average Loss

Using RSI in MetaTrader 4
Traders can apply the RSI indicator to any price chart in the MT4 platform. To add the RSI, choose one of the three methods available to add indicators:

  • Click on the Add Indicators icon in the top toolbar to view a list of available indicators. The indicators are categorized under the type of indicator, such as Trend, Oscillators and Volumes. Click "Oscillators" to reveal the sub-menu, and then select "Relative Strength Index," as shown in Figure 2.
Figure 2: Click the Add Indicators icon, select "Oscillators" and then "Relative Strength Index."


  • Click "Insert" on the top toolbar and select "Indicators." Next, select "Oscillators" and then "Relative Strength Index," as shown in Figure 3.
Figure 3: In the Main Menu > Insert > Indicators > Oscillators > Relative Strength Index.


  • In the Navigator window, click to open the Indicator list, and find "Relative Strength Index," as shown in Figure 4. Double-click "Relative Strength Index," right-click and select "Attach to a chart," or drag-and-drop to add the indicator to a price chart.
Figure 4: MT4\'s Navigator window lists all of the available technical indicators.


SEE: Find Forex Profit With The RSI Rollercoaster

Next: How To Apply Relative Strength Index With MetaTrader 4: Customizing RSI »



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