Usage of the Relative Strength Index Indicator

The Relative Strength Index (RSI) indicator follows the price movements and can predict the turn of the market. It lies in the range between 0 and 100. It is easier to see the support and resistance levels on the RSI graph than on the price chart.

In case the price reaches a new maximum/minimum, but the RSI does not reach its new maximum/minimum, it is very likely that the price will move in the opposite direction. It is even more likely to happen if the RSI turns the opposite way and goes upper or below its previous minimum/maximum. Such situation is called a failure swing.

When using the indicator in a strategy, it is reasonable to open a buy position if a new minimum on the price chart is not supported by a minimum of the RSI, and to open a sell position in the opposite situation.