Determining the RSI range
Posted on 26. Mar, 2007 by admin in Forex Basics, Technical Indicators
An up trending market will typically find support at the 40 level, with effective resistance at the 80 level. A down trending market will find resistance at 60, with effective support at the 20 level. Often times a primary indication that the trend has shifted from a bear trend to a possible bull market occurs when the RSI which previously was respecting the 60 level, rallies up to 70 or higher. When the inevitable decline arrives, the RSI will respect the 40 level, before rallying again.
In an 80/40 range (bull market), you will see the RSI make higher tops and higher bottoms a classical indication of a bull market! Likewise, in a 60/20 range (bear market) you will see the RSI making lower bottoms and lower tops. Recognizing this RSI behavior is very useful when first looking at a chart of a commodity or stock. Inspecting the range the RSI is in, is the first clue indicating the trend. The RSI will also find resistance or support at previous tops, or bottoms in the RSI values themselves. Old resistance points could become new resistance points, and if broken a new support level upon a retracement. Likewise, old support levels could prove to be effective support again, and if broken will prove to be effective resistance.
