Exploring the RSI for Better Market Insights
The Relative Strength Index (RSI) is one of my favourite indicators for gauging market conditions. Most traders learn that an RSI above 70 signals "overbought," while below 30 suggests "oversold." However, these standard levels don’t always give reliable signals, as seen on the USD/JPY daily chart.
In situations like this, it's crucial to adjust the parameters. I’ve tweaked the settings on this chart, moving the overbought level to 80 and the oversold level to 25. This adjustment has been extremely useful, producing fewer but higher-quality signals and helping to avoid premature exits from positions.
Here’s why RSI is so valuable: it measures the strength of the market by comparing the average gains on up days to losses on down days. When the RSI stays above 50, it's a sign the bull trend is healthy. Back in July, an oversold condition was flagged, and as the market began to rally, RSI held above 50—confirming the strength of the upward move. Conversely, when RSI dips below 50, it indicates the uptrend is losing steam. We saw this play out with a correction late last year.
Fast forward to August, and USD/JPY saw a significant sell-off. Once again, the RSI dipped below 50 and has stayed there, signalling continued market weakness. This suggests we may see further downside in the coming weeks.
Adjusting RSI parameters and understanding its trends can offer invaluable insights into market strength and help you make better-informed decisions.
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The information posted on Trading View is for informative purposes and is not intended to constitute advice in any form, including but not limited to investment, accounting, tax, legal or regulatory advice. The information therefore has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. Opinions expressed are our current opinions as of the date appearing on Trading View only. All illustrations, forecasts or hypothetical data are for illustrative purposes only. The Society of Technical Analysts Ltd does not make representation that the information provided is appropriate for use in all jurisdictions or by all Investors or other potential Investors. Parties are therefore responsible for compliance with applicable local laws and regulations. The Society of Technical Analysts will not be held liable for any loss or damage resulting directly or indirectly from the use of any information on this site.
In situations like this, it's crucial to adjust the parameters. I’ve tweaked the settings on this chart, moving the overbought level to 80 and the oversold level to 25. This adjustment has been extremely useful, producing fewer but higher-quality signals and helping to avoid premature exits from positions.
Here’s why RSI is so valuable: it measures the strength of the market by comparing the average gains on up days to losses on down days. When the RSI stays above 50, it's a sign the bull trend is healthy. Back in July, an oversold condition was flagged, and as the market began to rally, RSI held above 50—confirming the strength of the upward move. Conversely, when RSI dips below 50, it indicates the uptrend is losing steam. We saw this play out with a correction late last year.
Fast forward to August, and USD/JPY saw a significant sell-off. Once again, the RSI dipped below 50 and has stayed there, signalling continued market weakness. This suggests we may see further downside in the coming weeks.
Adjusting RSI parameters and understanding its trends can offer invaluable insights into market strength and help you make better-informed decisions.
Disclaimer:
The information posted on Trading View is for informative purposes and is not intended to constitute advice in any form, including but not limited to investment, accounting, tax, legal or regulatory advice. The information therefore has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. Opinions expressed are our current opinions as of the date appearing on Trading View only. All illustrations, forecasts or hypothetical data are for illustrative purposes only. The Society of Technical Analysts Ltd does not make representation that the information provided is appropriate for use in all jurisdictions or by all Investors or other potential Investors. Parties are therefore responsible for compliance with applicable local laws and regulations. The Society of Technical Analysts will not be held liable for any loss or damage resulting directly or indirectly from the use of any information on this site.
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