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 remains bid, focus stays on 1.1900
EUR/USD has broken its two-day run of losses and is ticking modestly higher on Thursday, hovering around the 1.1880 area as the US Dollar struggles to find clear direction. Weekly Initial Jobless Claims rose more than expected, taking a bit of shine off the Greenback, but markets are largely in wait-and-see mode ahead of Friday’s US CPI release.
GBP/USD sticks to the bid bias, still below 1.3700
GBP/USD is trading with decent gains around 1.3650 on Thursday. Indeed, Cable is attempting to shake off the weakness seen earlier in the week amid another choppy session for the Greenback, while a run of disappointing UK data has so far failed to derail the pair’s tentative recovery.
USD/JPY consolidates around 153.00 favoured by lower Fed easing bets
USD/JPY steadies around 153.00 after hitting two-week lows at 152.25. A strong US Nonfarm Payrolls report provided some support for the US Dollar on Wednesday. The Yen remains on track for a 2.6% weekly rally, boosted by Takaichi's victory at Sunday's elections.
Editors’ Picks
Gold plummets towards $4,900 as market players run into the USD
Gold plunges in the American session on Thursday, down over $150 a troy ounce in little less than an hour. Wall Street's collapse seems to be behind the ongoing US Dollar renewed strength, with the tech and the housing sectors leading the slump.
EUR/USD remains bid, focus stays on 1.1900
EUR/USD has broken its two-day run of losses and is ticking modestly higher on Thursday, hovering around the 1.1880 area as the US Dollar struggles to find clear direction. Weekly Initial Jobless Claims rose more than expected, taking a bit of shine off the Greenback, but markets are largely in wait-and-see mode ahead of Friday’s US CPI release.
GBP/USD sticks to the bid bias, still below 1.3700
GBP/USD is trading with decent gains around 1.3650 on Thursday. Indeed, Cable is attempting to shake off the weakness seen earlier in the week amid another choppy session for the Greenback, while a run of disappointing UK data has so far failed to derail the pair’s tentative recovery.
LayerZero Price Forecast: ZRO steadies as markets digest Zero blockchain announcement
LayerZero (ZRO) trades above $2.00 at press time on Thursday, holding steady after a 17% rebound the previous day, which aligned with the public announcement of the Zero blockchain and Cathie Wood joining the advisory board.
A tale of two labour markets: Headline strength masks underlying weakness
Undoubtedly, yesterday’s delayed US January jobs report delivered a strong headline – one that surpassed most estimates. However, optimism quickly faded amid sobering benchmark revisions.
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