RSI in forex signals explained

RSI (Relative Strength Index) is a momentum indicator that measures the speed and magnitude of recent price changes. It runs on a scale of 0 to 100. Readings below 35 indicate oversold conditions (potential BUY). Readings above 65 indicate overbought conditions (potential SELL).

How RSI is calculated

RSI compares the average gain over N periods to the average loss over N periods. The standard period is 14 (14 trading days for daily charts). A 14-period RSI above 65 means the pair has gained more than lost over the last 14 days, it may be stretched to the upside.

RSI thresholds in SignalsTrades

RSI < 35: oversold → BUY signal fires
RSI > 65: overbought → SELL signal fires
RSI between 35-65: NEUTRAL, no directional bias from this rule

SignalsTrades uses 35/65 instead of the traditional 30/70 to generate more signals in trending markets where RSI can stay near extreme levels for extended periods.

Limitations of RSI alone

In strong trending markets, RSI can stay overbought for weeks. A SELL signal from RSI alone in a bull trend often fails. This is why SignalsTrades requires multiple rules to align, RSI is one vote among 12, not the final decision.

What is RSI divergence?

RSI divergence occurs when price makes a new high but RSI makes a lower high (bearish divergence) or price makes a new low but RSI makes a higher low (bullish divergence). Divergence often precedes reversals. SignalsTrades monitors raw RSI levels, not divergence.

Is RSI more reliable on daily or hourly charts?

RSI is more reliable on higher timeframes (daily or 4-hour) because it filters out noise. SignalsTrades uses 14-period daily RSI for all signals.

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