Introduction:

RSI index is a technical analysis tool, which is widely used in short-term traders in stock, futures, foreign exchange and other markets. It evaluates the overbought and oversold situation of assets by measuring the changing speed and range of market prices, and helps traders make more accurate buying and selling decisions. This article will introduce some skills of using RSI indicator to help you better apply this indicator to trading.

First, the basic principle of RSI indicators

RSI index was put forward by WilderWelles in 1978. Its basic principle is to judge the overbought and oversold situation of the market by calculating the average increase and average decrease in a certain period. Generally, the value range of RSI index is between 0- 100. Above 70 is considered as an overbought signal, and below 30 is considered as an oversold signal.

Second, the application skills of RSI indicators

1. Confirm the trading signal.

One of the main applications of RSI indicator is to determine the trading opportunity. When the RSI index value exceeds 70, it means that the market is overbought and you can consider selling. On the contrary, when the value of RSI indicator is lower than 30, it means that the market is oversold and you can consider buying. A single RSI signal is not always reliable, so it is suggested to combine other technical indicators and trend analysis to make a judgment.

2. Confirm that the trend has been reversed

In addition to determining the timing of buying and selling, RSI indicators can also be used to confirm the trend reversal. When the market is in an upward trend, the RSI index falls below 70 in the overbought area, which may indicate that the trend is about to reverse to a downward trend. Similarly, when the market is in a downward trend, the RSI indicator breaks through 30 in the oversold area, which may indicate that the trend is about to reverse to an upward trend. Traders can use this signal to adjust positions or reverse operations.

3. Combine RSI and trend line

Combining RSI indicators with trend lines can further improve the accuracy of transactions. When the market is in an upward trend, the value of RSI index is above 50, and when it crosses the trend line, it may indicate that the market will continue to rise; On the contrary, when the market is in a downward trend, the RSI index value is below 50, and when it crosses the trend line downward, it may indicate that the market will continue to fall. This combination can help traders better grasp the changes in trends.

4. Avoid excessive trading

RSI indicators can help traders avoid excessive trading. When the market is in a continuous upward trend, the RSI index value may remain above 70 for a long time, but it does not mean that it is the time to sell, because the market is still in a strong position. On the contrary, when the market is in a continuous downward trend, the RSI index value may remain below 30 for a long time, but it does not mean that it is a buying opportunity, because the market is still in a weak position. Traders should make reasonable decisions according to the overall situation of the market and the verification of other indicators.

Conclusion:

RSI indicator is a commonly used technical analysis tool, which can help traders to judge the overbought and oversold situation in the market, determine the trading opportunity and confirm the trend reversal. A single RSI indicator is not absolutely reliable. Traders should combine other technical indicators and trend analysis to make judgments to reduce the risk of misjudgment. By flexibly using the skills of RSI indicators, traders can improve the accuracy and profitability of trading. In practice, it is suggested to formulate a reasonable trading strategy in combination with its own trading style and risk tolerance, taking into account various factors.