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Forex Glossary

The Industry's Most Important Terms Explained

The forex industry is made up of countless definitions and it's easy to forget a few along the way. But because no forex education can be complete without a glossary of forex terms, we've compiled one which aims at explaining key definitions in the simplest way possible. This way, you'll never be lost or confused again!


RSI

Relative Strength Index.  A popular technical indicator developed by Welles Wilder.  It addresses erratic price movements in the markets by smoothing prices using the following formula:

RSI = 100 - (100 / (1+ (Average of n up closes / average of n down closes)))

The default value is 14 but 9 may also be used.  RSI is bounded between 0 and 100.  When the oscillator moves above 70 it is considered overbought and a reversal warning is indicated.  If there is a negative divergence between the price and the RSI, then a potential sell indication is in place.  When the oscillator moves below 30 it is considered oversold and hence a reversal alert is indicated.  If there is a positive divergence between the price and the RSI, a possible buy indication may be in place.

Category: Technical Indicators

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