The Relative Strength Index (RSI), developed by J. Welles Wilder, is a momentum oscillator that measures the speed and change of price movements. The RSI oscillates between zero and 100. Traditionally the RSI is considered overbought when above 70 and oversold when below 30. Signals can be generated by looking for divergences and failure swings. RSI can also be used to identify the general trend.

A RSI’s case study

The normal default setting for RSI is 14 on technical charts, however in the current case study we examine what happens to the major FX instruments after 3-days since RSI (5) hits or goes to 27 or below.

As we can see above, the majority of major FX instruments react positively after 3-days since RSI (5) crosses above the oversold level (27).

By reviewing USDJPY, we see that the study contains 1961 bars. Since 2014.12.17, RSI crossed above the 27 level 102 times. According to the statistics, we see that the last case resulted in a positive 0.19% change. Further, by looking at the mean % change and median % change, we see that both were bullish (0.16% and 0.21% respectively).

By clicking on the USDJPY symbol, we can get the graph with the study’s results as below (only available in MT5).

In the MT4 version we have to select only one level, and the option to see what happens if the price crosses above or below this level.

In the example that follows, we can see what happens when the price crosses below the 30 level of the RSI.