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 stays below 1.1150 after upbeat US data
EUR/USD pulls away from the daily high it set near 1.1200 and trades below 1.1150 on Thursday. The upbeat data from the US helps the USD limit its losses but the improving risk mood allows the pair to hold its ground in the American session.
GBP/USD retreats below 1.3250 after BoE-inspired rally
GBP/USD loses its bullish momentum and retreats below 1.3250 after touching its highest level since March 2022 above 1.3300 with the immediate reaction to the BoE's decision to leave the policy rate unchanged at 5%. In the US, weekly Jobless Claims declined to 219K.
Japanese Yen experiences volatility due to Fed Powell caution, upcoming BoJ rate decision
The Japanese Yen moves sideways amid hawkish sentiment surrounding the BoJ. The Bank of Japan is expected to keep interest rates unchanged on Friday. Fed policymakers raised their long-term projection for the federal funds rate from 2.8% to 2.9%.
Editors’ Picks
EUR/USD stays below 1.1150 after upbeat US data
EUR/USD pulls away from the daily high it set near 1.1200 and trades below 1.1150 on Thursday. The upbeat data from the US helps the USD limit its losses but the improving risk mood allows the pair to hold its ground in the American session.
GBP/USD retreats below 1.3250 after BoE-inspired rally
GBP/USD loses its bullish momentum and retreats below 1.3250 after touching its highest level since March 2022 above 1.3300 with the immediate reaction to the BoE's decision to leave the policy rate unchanged at 5%. In the US, weekly Jobless Claims declined to 219K.
Gold clings to strong daily gains near $2,580
Following a pullback in the early American session, Gold regains its traction and trades decisively higher on the day at around $2,580. The 10-year US Treasury bond yield retreats toward 3.7%, supporting XAU/USD in the Fed aftermath.
Bitcoin extends gains after Fed cut interest rate
Bitcoin extends recent gains and trades above $62,000 at the time of writing on Thursday, following a 2.4% increase the previous day after the Federal Reserve’s (Fed) dovish decision to cut interest rates by 50 basis points.
BoE expected to keep interest rate unchanged at 5% as price pressures persist
After a close call in August, the Bank of England’s September interest rate decision is keenly awaited for fresh cues on the bank’s future policy action and the pace of its bond sales.
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