Guide on How to EASILY Read the RSI Indicator for Beginners

Artikel diperbarui pada 21 May 2023.

Talking about the business world, it will never be separated from the discussion about how to read the RSI indicator.

Because it is related to stock trading which is said to be quite complicated and also challenging. Don’t be discouraged, with the rigor of traders, profits can definitely be obtained.

Therefore, will discuss thoroughly.

What is RSI?

how to read stock RSI indicator

There may be some people who do not know what RSI is. In general, the definition of RSI stands for Relative Strength Index.

That is, a technical indicator whose function is used in financial market analysis. Including in the stock business. This RSI also has a role, namely as a momentum parameter.

This role is to measure the movement of stock prices. If the momentum has increased, it is a sign that the stock is being actively purchased….

Conversely, if there is a decrease, the stock trend is weakening. Apart from being a momentum, RSI is also relied upon as an oscillation parameter.

That means traders can find out information about market conditions that have been overbought.

Usually referred to as overbought or even oversold or oversold. In general, this RSI has the aim of being able to detect signals between buying and selling.

Learning the RSI Indicator also requires you to know some of the ins and outs of trading.

However, for those of you who doubt the halalness of trading, you can read our article about how to trade sharia stocks.

How to Read the Relative Strength Index (RSI) Indicator?

As you already know, the RSI is used to determine the strength of the stock price. The method is easy, by comparing the increase and decrease in price in the chart. The goal remains the same, which is to be able to provide a sell or buy signal.

  1. Pay attention to lines/charts in stock trading
  2. When the RSI line is rising upwards, the indicator is a buy signal / golden cross
  3. However, if the RSI line goes down. The indicator is giving a sell signal or death cross
  4. RSI line has a golden cross.
  5. The RSI line has a range of 0-100. If the line is above 70, it means overbought
  6. RSI line has a range of 0-100.
  7. With the line above 70, you are not advised to buy the stock
  8. The RSI line will also be oversold at 30 and below
  9. With the line at 30 and below, you are advised to buy the stock

How to Use RSI Indicator In LiteForex Trading Terminal

You can also use the RSI indicator in the trading terminal. Please note, that the trading terminal has been specifically designed to have a wide variety of trading features.

LiteForex is no exception. So, these features will not be present in a typical trading platform.

  1. Open the LiteForex trading terminal
  2. In your profile, open a trading chart. Choose any money pair
  3. Then, click on trade in the left menu section “TRADE”
  4. Then select the Currencies section, click on the desired currency pair
  5. At the top of the chart, you click Indicators and then select the RSI indicator
  6. A pop up will appear below the price chart
  7. The process of using the RSI indicator on Liteforex is complete

Rules to Buy Using the Relative Strength Index (RSI)

According to the previous discussion, the RSI can be used so that traders can find out information about overbought.

According to information, RSI is not suitable for aggressive traders or those who usually trade most often. Because the RSI rarely generates signals.

  • RSI must remain in the oversold area or below 30
  • You wait until the RSI leaves the oversold area or the chart rises to 30
  • For the reinforcement, make sure there is such a thing as a bullish candlestick
  • Wait for the candlestick to close or finish
  • You enter or buy at the opening of the next candlestick
  • Place the stop loss at the last swing low

Rules to Sell Using Relative Strength Index (RSI)

Not only by buying, you will also be faced with a sell position when using the Relative Strength Index.

However, before selling it is better to pay attention to the rules that have been set. So that the results can be maximized and not lose money. Here’s the review.

  • Make sure the RSI remains in the overboought area, above 70
  • Wait for the RSI to drop below 70
  • For reinforcement, make sure the bearish cundlestick leaves the overbought area
  • Wait again for the candlestick to close or finish
  • You sell at the opening of the next candlestick
  • Place a stop loss just above the last swing high

Trading Strategy Using Relative Strength Index (RSI)

RSI, which stands for Relative Strength Index, was first made famous by J. Welles Wilder Jr in 1978.

The purpose of using the RSI is to be able to measure the speed and price changes in each financial product.

1. Overbought and Oversold Strategies

One of the strategies that RSI has, which is overbought (above level 70) and oversold (below level 30).

For a sell entry, it will be done when the RSI signal rises to the over bought level. Then after that it will be executed when the signal goes down.

As for the buy entry, it will be done when the signal from the RSI drops to the oversold level. Then after that it will be executed when the signal goes back up.

It can also be done when the RSI signal actually goes down after its position above oversold. For the stop loss, you can do it when the signal is below oversold.

2. Failure Swing Strategy

There is another strategy of using RSI, which is the Failure Swing strategy or commonly known as the failure swing.

According to its creator Wilder, the failure swing is an indication of a strong signal or reversal. The signal of this strategy will focus entirely on the RSI and ignore the movement of the price.

The Failure Swing strategy is divided into two more strategies, namely the Bullish Failure Swing (formed when the RSI moves downwards) and holds above oversold.

While the Bearish Failure Swing (formed when the RSI rises to overbought and then corrects below overbought).

The Meaning of the Relative Strength Index Centerline Cross

Perhaps not many beginner traders will know this. Please note, that in addition to the two lines in the Relative Strength Index indicator.

As in the 70% and 30% lines, there is still another line, namely the center line crossing which will usually appear with a number mark of 50%. This is called the current stock trend.

Because the uptrend will always be marked by the motion of the 50% center line, then continue above the line.

From here, the Relative Strength Index line will cross the center line from the bottom and then move up until it stops at 70. This includes signals of market trends gathering momentum.

From there comes the name bullish signal, but on the contrary, if the movement is from the top of the 50 number and then moves to 30.

That’s a sign that the trend is down, this is what is called the intersection of the falling center line. The Relative Strength Index line will cross 50.

By reading and knowing how how to read the RSI indicator as in the article above. Now as a beginner trader, you don’t need to worry about being confused in using the RSI indicator. Make sure that you don’t trade often, so that the results are stable.

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