Relative Strength Index [RSI]
Relative Strength Index, sometimes shortened to RSI, is a price oscillator used in technical analysis to show changes in the strength of prices.
The Relative Strength Index is considered a popular tool and is a relatively easy one to interpret. This price following oscillator is depicted as a basic graph and ranges from zero to one hundred.
By far one of the most popular methods of analyzing the Relative Strength Index is to look for an area on the graph that shows a divergence away from the current trend, in particular seeking an area of divergence in which the currency price seems to be aiming to create a new high, but where the Relative Strength Index has as yet failed to reach a level on par with it’s previous price high.
This sort of divergence can often be considered a good indication of an impending price reversal to the current trend and when the RSI does reverse and falls in a down trend that extends below its most recent low, the RSI could then have been considered to have completed what is known as a ‘failure swing’. Such a swing is generally considered to be a confirmation of an impending reversal in the price of the currency in question.