The New RSI Basics May Not Be What You Think

RSI, the Relative Strength Index is one of the few trading indicators used in forex trading that can actually act as an independent trading system. An independent trading system is a system that does not use additional indicators to confirm a trade.

How many indicators are you using in your charts? If you are like many traders, you are using up to 3 or 4. What types of indicators are used most often? Moving Averages, Hand Drawn Trend Lines, MACD, RSI, ATR, CCI, Fibonacci, Elliott Wave, Price Action, Chart Patterns, Candlesticks, etc. Whenever we use multiple indicators to trade, we are not using a separate system. We are trying to determine the direction of the price at some point that will move in our favor and we are using multiple indicators to do so. This is a flawed approach, although it seems logical. The RSI uses processes within the RSI itself to determine whether or not a trade should be performed.

The vast majority of people are unaware of the value of the RSI because they have been taught the conventional use of it; however, the conventional use is incorrect. Overbought and oversold cannot be determined by RSI or any other indicator and divergences created by using RSI and / or other indicators is also a faulty trading methodology.

New concept of RSI n. # 1: the 4 RSI trading signals

There are 4 signals that alert the trader using RSI to changes in market momentum. Without momentum, the trader is lost and not knowing the direction of the momentum is worse. You can tell whether you understand where these signals occur and when.

New RSI concept n. 2 – RSI Range

RSI trends fall into RSI areas and stay there until trends change. Knowing these changes allows the trader to look at a chart and immediately know where the RSI must stay to maintain the trend. Knowing this gives traders additional locations to enter or exit trades depending on the circumstances.

New concept of RSI n. 3: RSI range swings

When RSI moves from one point to another, it signals the end of one RSI range and the beginning of another. These range swings are clues for the trader to map where the price is heading. Knowing with high probability that a range change is about to occur is one of the most profitable tools a trader can have.

New concept of RSI n. 4 – Momentum 1, 2 and 3

This fourth concept is perhaps the most important. Without it there is no trade. Entering a trade with the expectation that something will happen and it doesn’t happen is one of the most frustrating things a trader can experience. Moments 1 and 2 can be seen on the RSI charts. Moment 3 then becomes more predictable. Momentum 3 is what makes money for the merchant. Statistical data improves the probability of Momentum 3 by locating the times when momentum occurs the most.

New concept of RSI n. 5: levels of success

RSI or any other trading system that does not have a known objective at the time of trading is not a trading system.

These concepts are the basic principles that make RSI trading as a standalone trading system a measurable and successful trading system.