RSI Indicator Explained
What is the RSI?
The Relative Strength Index (RSI) measures the speed of recent price changes to evaluate overbought or oversold conditions. Developed by J. Welles Wilder in 1978. Default period: 14. Scale: 0–100. Above 70 = overbought. Below 30 = oversold. Most effective in ranging markets; can stay overbought in strong trends.
RSI Settings for Forex and Gold
Default (14 period): good for daily and 4H charts. Short-term: RSI(9) for 1H charts. Conservative: RSI(21) for fewer but more reliable signals. For gold (XAU/USD): RSI(14) on daily chart is most reliable. Some traders adjust thresholds to 75/25 for trending markets.
RSI Divergence — The Most Powerful Signal
Bullish divergence: price makes a lower low but RSI makes a higher low — momentum weakening, potential reversal up. Bearish divergence: price makes a higher high but RSI makes a lower high — potential reversal down. RSI divergence on higher timeframes (daily, 4H) is one of the most reliable trading signals.
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