The Relative Strength Index (RSI) and Trend Trading

By Barry Burns

The relative strength index (RSI) is an indicator that compares upward and downward movements in closing price over a period of time of your choice (commonly 14 bars). As with any indicator, traders use the RSI in many ways. One of the most typical ways is to go long when RSI moves below a value of 40 and then rises above it.

[Credit: Figure by Barry Burns]
Credit: Figure by Barry Burns

In a downtrend, a short signal is when RSI moves above 60 and then moves back below it.

[Credit: Figure by Barry Burns]
Credit: Figure by Barry Burns