Elliott Wave Forecast Team
ElliottWave-Forecast.com
If you’re new to Elliott Wave, you may be asking: How do I tell if a wave is over when there’s so much price movement? One tool, in addition to trendlines, is to use Relative Strength Index (RSI).
Relative strength index
The relative strength index (RSI) is a momentum indicator used in technical analysis. RSI measures the speed and magnitude of a security’s recent price changes to evaluate overvalued or undervalued conditions in the price of that security.
The RSI is displayed as an oscillator (a line graph) on a scale of zero to 100. The indicator was developed by J. Welles Wilder Jr. and introduced in his seminal 1978 book, New Concepts in Technical Trading Systems.
The RSI can do more than point to overbought and oversold securities. It can also indicate securities that may be primed for a trend reversal or corrective pullback in price. It can signal when to buy and sell. Traditionally, an RSI reading of 70 or above indicates an overbought situation. A reading of 30 or below indicates an oversold condition.
Here is what RSI looks like:
RSI swinging from 70 and 30
How to use RSI
We can use RSI’s movements up and down to identify waves by paying attention to the trends within it like so:
Waves moving with RSI
Clearly, in the above picture, you can see how RSI trends with price, and even proceeds it when breaking trend lines. You may be able to use these trend lines to tell when one wave ends and another begins. The key here is to draw your lines off of as many supporting lows as you can. Most lines here have 2-3 tests and encompass an entire downtrend. RSI trends are composed on higher highs, and higher lows, but downtrends are composed of lower lows, and lower highs.
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Editors’ Picks
EUR/USD meets support near 1.0870 ahead of the Fed
Investors' cautious approach appears to be bolstering the US Dollar ahead of the Federal Reserve's interest rate decision scheduled for later this evening in Europe, while the EUR/USD has fallen back below 1.0900 after reaching its year-to-date highs on Tuesday.
GBP/USD remains side lined near 1.2970 prior to the FOMC event
GBP/USD comes under pressure and slips back to the 1.2970 region following Tuesday's breakout of the key 1.3000 hurdle in a context of renewed strength in the Greenback ahead of the Fed's interest rate decision.
USD/JPY revisits two-week high of 150.00 with Fed policy in focus
USD/JPY rises to near 150.00 ahead of the Fed’s monetary policy outcome at 18:00 GMT. Investors will pay close attention to Fed’s dot ploy as the central bank is expected to leave interest rates steady. The Japanese administration sees downside economic risks due to accelerating inflationary pressures and trade war.
Editors’ Picks
EUR/USD meets support near 1.0870 ahead of the Fed
Investors' cautious approach appears to be bolstering the US Dollar ahead of the Federal Reserve's interest rate decision scheduled for later this evening in Europe, while the EUR/USD has fallen back below 1.0900 after reaching its year-to-date highs on Tuesday.
Gold treads water around $3,030, looks at the Fed
Gold alternates gains with losses after reaching a record high near $3,050 earlier today. Traders, in the meantime, await the Federal Reserve's upcoming monetary policy decision and the release of the revised Summary of Economic Projections.
GBP/USD remains side lined near 1.2970 prior to the FOMC event
GBP/USD comes under pressure and slips back to the 1.2970 region following Tuesday's breakout of the key 1.3000 hurdle in a context of renewed strength in the Greenback ahead of the Fed's interest rate decision.
Federal Reserve set to keep interest rate unchanged amid US recession fears and Trump tariff concerns
Market participants widely anticipate the US central bank to leave policy settings unchanged for the second consecutive meeting, after cutting the interest rate by 25 basis points (bps) to the 4.25%-4.5% range in December.
Tariff wars are stories that usually end badly
In a 1933 article on national self-sufficiency1, British economist John Maynard Keynes advised “those who seek to disembarrass a country from its entanglements” to be “very slow and wary” and illustrated his point with the following image: “It should not be a matter of tearing up roots but of slowly training a plant to grow in a different direction”.
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