Jump to content

Indicator update: Customising RSI levels

DanielaIG

On the back of client feedback we now offer the possibility to customise the RSI levels on desktop and mobile devices. To do so, click on the RSI label once you have enable the indicator on your chart. This will open a dialog box that will allow you to change the levels (which are set at the default levels of 30/70), as well as customise the period and the colour of the lines.

What is RSI?

The Relative Strength Index is a momentum indicator that measures the magnitude of recent price changes to evaluate whether a stock is oversold or overbought. This indicator can oscillate between 0 and 100 and usually uses the level of 30 to indicate that a stock is oversold and the level of 70 to indicate that a stock is overbought.

2018-12-18 14_30_35-IG Trading Platform _ Spread Betting.pngThe RSI indicator uses the average percentage gains and losses of a specific period which is usually the last 14 days. When a candle closes after a positive move (a green candle stick) the RSI value will increase, whilst after a negative move (a red candle stick) it will fall as the number. The RSI value will be 0 if stocks fall on all 14 days and 100 if the price moves up on all the days.

Like the price, the RSI creates highs and lows that can be connected to create resistance and support levels. In the same way as price action, these support and resistance levels can also be tested, broken and retested.

How RSI is used as a forward-looking indicator

These support and resistance levels can be broken on the RSI chart before they are broken on the price chart, which can create an opportunity to profit on a reversal before it takes place on the price. As with all indicators this is never a guarantee, however it does provide a qualitative supportive argument for possible price action.

Let’s look at the Eurodollar 1-hour chart as an example of this resistance break:

RSIresistance0.png

We can see that both the price and the RSI are testing a resistance level, but the breakthrough happens one candlestick before on the RSI chart than it does in the price chart. In this case, the RSI is a leading signal that offers possibility to enter the market at a more favourable price an hour before the actual price level breaks through the resistance level.

Why would you adjust the RSI levels?

For the RSI to be most effective, it has to be adjusted for the inherent volatility of a specific stock or market. In a very volatile environment the RSI is likely to hit the overbought and oversold levels with more frequency, weakening the reliability of the RSI as a leading indicator. When you widen the resistance and support levels you will probably have fewer trends, but they will possibly be better signals.

As can be seen on the FTSE100 15-minute graphs below, the RSI tests the 30-support level various times, but it is not until it tests the 20-support level that the price trends actually reverses.

rsi2.png

 

rsi1.png



3 Comments

Recommended Comments

It would be great if

1. the results such as MACD are shown;

2. users are allowed to customize those indicators by themselfs.

Share this comment


Link to comment

Your content will need to be approved by a moderator

Guest
You are commenting as a guest. If you have an account, please sign in.
Add a comment...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

  • Blog Statistics

    • Total Blogs
      3
    • Total Entries
      344
  • Our picks

    • The bulls are coming back: APAC brief 21 Jan
      The bulls are coming back: Traders received the greenlight to jump into risk assets on Friday. It culminated in a substantial jump across global equities and a certain “risk-on” attitude to trading. The impetus was arguably more technical than fundamental. The boost in sentiment in being attributed mostly the leaked news that Treasury Secretary Stephen Mnuchin was planning to lift US tariffs on China. Whatever the motive, nefarious or simply untrue, that story was quickly denied by the White House. However, it signalled enough to the market that progress was being made in trade war negotiations. That extra fuel to this recovery’s fire supported a push above very significant technical levels in Wall Street indices, attracting buyers and further validating the view that the December sell-off is behind us.

      The stock market’s biggest fan: There’s one market participant who is apparently willing that notion to be true: US President Donald Trump. The US President obviously uses the stock market’s performance as a measure of his success – rightly or wrongly. And over the weekend, amidst the very many Tweets that were Tweeted by Trump, this one outlined his view on the US economy and stock market: “the Economy is one of the best in our history, with unemployment at a 50 year low, and the Stock Market ready to again break a record (set by us many times)…” Quite a pledge to make – and one markets participants aren’t going to take too seriously. Regardless, it does provide a perversely comforting story for markets, to know that the US President is wishing this market higher.
      • 0 replies
    • What's wrong with predictions?
      Join the IG conversation on Community. "There's lots of talk about 'the smart money' banks, institutions, pension funds and the like but not much about the others side of the coin, 'the dumb money', why is that - it's because they just aren't influential to the market. The collective size of the dumb money is dwarfed by the big money to the point of being irrelevant."
        • Great!
        • Like
      • 3 replies
    • Stranger Things Have Happened: Netflix Earnings and More – EMEA Brief 18 Jan
      Netflix announced subscriber growth of 8.8 million over the past year giving them a total of more than 139 million. Meanwhile, their quarterly revenue was up 27% from the same period in 2017 but the share price is down 3% as they failed to hit analysts’ expectations.
      • 0 replies
  • Latest Forum Topics

×