Elliott Wave Forecast Team
ElliottWave-Forecast.com
The Relative Strength Index (RSI) is a very popular momentum based indicator that is specifically used within technical analysis by market technicians. It measures the speed and magnitude of an instruments most recent price changes to evaluate overbought or oversold conditions in the price. Developed by J.Welles Wilder Jr in the late 70s as a line graph based oscillator.
Why do traders use them?
Traders can use RSI to predict momentum and behaviour of a financial instrument. It helps traders validate trends and trend reversals. Easy to spot whether an instrument is overbought or oversold. It can in some cases support other indicators as well. Finally, we can measure whether momentum is running out of steam by price and the RSI diverging against each other.
RSI are usually plotted at the bottom of the chart so they can compare the line graph with the price action of the instrument it is measuring.
Divergences
One of the most common ways RSI are praised to be used are for spotting divergences. In a bullish trend, when price is extended and forming new higher highs – the intervals between each high may get smaller and shorter as price progresses. The RSI would measure this and start forming lower lows, therefore diverging against the main price action. This would give us an indication that the instrument’s trend is running out of momentum.
Most common settings used
RSI is set to measure the price to the last 14 days of price action with levels set between 30 and 70. RSI above or below this level is considered to be either overbought or oversold.
Here are EWF – we primarily use Elliott Wave to label our charts to provide context of the individual waves. However, we use indicators such as the RSI and the Stochastic indicator to measure momentum. Next week I will be covering the Stochastic indicators.
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Editors’ Picks
EUR/USD clings to small gains near 1.1750
Following a short-lasting correction in the early European session, EUR/USD regains its traction and clings to moderate gains at around 1.1750 on Monday. Nevertheless, the pair's volatility remains low, with investors awaiting this weeks key data releases from the US and the ECB policy announcements.
GBP/USD remains confined in a range above mid-1.3300s ahead of UK jobs report
The GBP/USD pair extends its sideways consolidative price move through the Asian session on Tuesday and currently trades around the 1.3370-1.3365 region, nearly unchanged for the day. Traders seem reluctant and opt to wait for this week's important macro releases and the key central bank event risk before placing fresh directional bets.
USD/JPY stays in the red below 155.00 amid BoJ rate hike bets, US data awaited
USD/JPY holds moderate losses below 155.00 in the Asian session on Tuesday. The Japanese Yen gains ground on expectations that the Bank of Japan will raise interest rates at the upcoming policy meeting on Friday. Traders will closely monitor key US data, including Nonfarm Payrolls, Retail Sales, and Purchasing Managers Index, which are due later in the day.
Editors’ Picks
AUD/USD falls toward 0.6600 amid risk aversion
AUD/USD drops toward 0.6600 in Asian trading on Tuesday, as recent mixed Australian labour market data and renewed concerns about the health of the Chinese economy undermine the Aussie amid a softer risk tone and a pause in the US Dollar decline. Traders now look to the delayed US NFP report for some impetus.
USD/JPY stays in the red below 155.00 amid BoJ rate hike bets, US data awaited
USD/JPY holds moderate losses below 155.00 in the Asian session on Tuesday. The Japanese Yen gains ground on expectations that the Bank of Japan will raise interest rates at the upcoming policy meeting on Friday. Traders will closely monitor key US data, including Nonfarm Payrolls, Retail Sales, and Purchasing Managers Index, which are due later in the day.
Gold defends $4,300 as focus shifts to US NFP, PMI data
Gold price holds the $4,300 level, easing from the highest since October 21 in the Asian trading hours on Tuesday. The precious metal stays afloat on further US Federal Reserve rate cut bets. The US Nonfarm Payrolls report will take center stage later on Tuesday. Also, the US Retail Sales and Purchasing Managers Index will be published.
Top Crypto Losers: Aster, Midnight, and Ethena extend losses as selling pressure mounts
Aster, Midnight, and Ethena are the altcoins with the most losses over the last 24 hours, as the broader cryptocurrency market weakens amid Bitcoin dropping below $86,000.
NFP preview: Complex data release will determine if Fed was right to cut rates
The long wait is over, and the Bureau of Labor Statistics in the US will release nonfarm payrolls reports for both November and October at 1330 GMT on Tuesday. The overall NFP figure for October is expected to be -10k, however, it is expected to be influenced by a massive 130k drop in federal department workers.
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