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 consolidates around 1.0900, bullish bias remains ahead of key US data
The EUR/USD pair is seen consolidating its strong gains registered over the past two days and oscillating in a narrow band during the Asian session on Tuesday. Spot prices currently trade around the 1.1900 mark, just below an over one-week high touched the previous day.
GBP/USD edges lower below 1.3700 on UK political risks, BoE rate cut bets
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Editors’ Picks
AUD/USD consolidates below 0.7100 on broad US Dollar weakness
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USD/JPY drops toward 155.00 as focus shifts to US data
USD/JPY meets fresh supply and inches closer toward 155.00 in the Asian session on Tuesday. The Japanese Yen holds the upper hand over the US Dollar after Japanese Prime Minister Sanae Takaichi led the ruling Liberal Democratic Party to a historic landslide win and on intervention talks. Traders brace for key US economic data that could offer more clues on the Federal Reserve's monetary policy.
Gold: Will US Retail Sales data propel it above $5,100?
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