The Advanced RSI indicator is one of the popular indicators and is used by many investors. Using the RSI indicator, investors will identify many signals when entering orders. So how to use the RSI indicator fluently, let’s find out in detail with Forex Trading right now.
Not all investors know how to use the Advanced RSI indicator
The RSI indicator in the MT4 platform is considered an indicator used to measure fluctuations between two extremes: overbought and oversold.
Analyze the RSI indicator in forex trading.
The Advanced RSI has a default setting of 14. This means that the RSI will evaluate the average increase or decrease of the last 14 candles. Besides, it also analyzes the size of the candle. The chart below highlights the last 14 candles. In 14 candles including 13 positive and 1 bearish, the RSI is at 85.
Buy and oversold signals on Advanced RSI
If the RSI exceeds 70, it means the market is overbought, and vice versa. If the RSI exceeds 30, it means the market is oversold. If the RSI is rising, it simply means there are more bullish candles than the RSI. It shows that the market has been rising steadily for some time.
And when it crosses the 70 level, it shows that the market is in overbought mode and is likely to reverse. When we understand the role of the RSI indicator, we can see that the signals are overbought or oversold.
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Looking at this chart, you can see that the first zone shows the period and the price continues to decrease for 16 days. However, at this time, the Advanced RSI indicator increased again at 30. However, after that, there was no buying. If you only rely on the indicator and buy, the investor will suffer a loss at this time.
Advanced RSI trading strategy incorporating SMA 5
The RSI trading strategy with SMA 5 is only used with these two indicators. With this combination, investors can use multiple time frames. Besides, it can also be used with all currency pairs.
Principles when trading Advanced RSI combined with SMA 5
To be able to combine the RSI indicator with the SMA 5, investors need to clearly understand several notes. First, the SMA 5 indicator plays an important role in determining the trend.
If the price is above SMA 5, this is a sign of an uptrend. If the price is below SMA 5, this is a sign of a downtrend. The RSI indicator is used as a confirmation signal. Advanced RSI is an oscillating indicator that helps investors confirm overbought and oversold zones.
A currency pair is considered overbought when the RSI indicator approaches 70. This means it is now overvalued and we can look for opportunities to sell lower. Conversely, when the RSI approaches 30, it is a sign that the price is oversold and we can look for buying opportunities.
Analyzing the RSI trading strategy with SMA 5
For buying transactions when combining two indicators. If the price has crossed SMA 5 from bottom to top and there is a candle closing above SMA 5. At this point, investors should check the details to make sure the candle closed about 10 pips higher than SMA 5.
Then check the indicator and now the RSI needs to be above 50. Place a buy order when the candle closes or place a buy-stop order 2-5 pips above the high of the candle. Place a stop loss 5 points below the low price of the candle. Set your profit at 3x risk or set it at the previous maximum.
Comments and notes when using the RSI trading strategy with SMA 5
This is a trading strategy that is quite simple and easy to apply. It is a trend-following trading strategy, so if you identify the right trend, you can easily make a profit. This profit will be higher if you trade on large time frames like H1, H4, or D1.
However, to be able to apply this strategy, investors need to have solid professional knowledge. The SMA line is a lagging indicator, because of this, there will sometimes be noisy signals. Investors need expertise to distinguish indicators at this time.
Many investors wonder what is scalping trading and whether this strategy can be applied to Scalping trading. The answer is absolutely yes, Advanced RSI and SMA 5 can be used for Scalping trading.
How to calculate MFI and RSI
MFI and RSI are both indicators used by many investors in technical analysis.
Formula to calculate MFI and RSI index
While Advanced RSI is a technical indicator that shows price strength. MFI is an index that reflects the cash flow strength of an asset over some time. They are analyzed based on trading volume. The period is measured in days, weeks, and months and is usually calculated in 14 periodic periods.
What is the formula for calculating MFI?
The MFI index is calculated as 100-[100/(1+MR)]. MR is also known as the cash flow ratio. If the cash flow is positive, the price is higher than the previous period. If there is cash flow then there will be a lower price than in the previous period.
What is the formula for calculating RSI?
This index is calculated as 100-100/(1+RS). Where RS is the relative intensity. Calculated as the average of the total number of rising periods. Then divide by the average of the total number of down periods in a given period.
Analyze RSI and MFI when trading forex
MFI, like RSI, is used to determine price trends as well as identify overbought and oversold areas. If the MFI indicator is above 50, it means it is in an uptrend and vice versa.
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If the MFI exceeds 80, it shows that there are signs of excessive growth and the possibility of a sharp decline. If the MFI drops below 20, it shows that there are signs of excessive decline and the possibility of a sharp increase. To trade more effectively, besides MFI and RSI, investors can also use the Pivot chart to further determine support and resistance levels when placing orders.
Conclude
The Advanced RSI indicator is an indicator used by many people. However, that does not mean investors can abuse it. Any analytical tool is just a method to support investors in trading. With the information that Forex Trading provides, we hope to be useful to investors. What are you waiting for? Start trading with the RSI indicator right away.
FAQs
What is the purpose of the RSI divergence signal?
RSI’s divergence signal shows that the momentum is gradually weakening and is likely to reverse.
What are the rules for SMA 5 with sell orders?
With a sell order, when the SMA 5 price above falls and there is a candle close below, the sell order will be determined.
What should you keep in mind when using the RSI indicator when taking profits?
Normally, when investors use this indicator, they should only set profit 5 pips away from the highest price.
