How to Predict Forex Trends Using the RSI Indicator

The Forex market is, by its very nature, an unpredictable beast. Its volatility is what makes trading so rewarding, giving traders the opportunity to make quick gains within as little as one day.

But with the right tools, you can make pretty accurate predictions. If you use a platform like MetaTrader 4 (MT4), you’ll have access to all the indicators you need. Using the RSI indicator on MT4 is an excellent means of technical analysis.

Using RSI you can accurately predict movements and trends, using current market information.

What is the RSI?

The Relative Strength Indicator (RSI) is a tool for technical analysis of the Forex market. It measures the ratio of up-moves to down-moves in current market prices, and expresses it in a range of 0 to 100.

How do I interpret it?

The general rules are pretty simple:

  • If the RSI measures 70 or more, it indicates that the market is overbought, and the trend will probably turn – leading to declining prices.
  • If the RSI measures 30 or less, it indicates the market is oversold, and the trend might turn – leading to price increases.

So it’s that simple?

The unfortunate nature of Forex indicators is that they’re bound to be misused. This is especially the case with seemingly simple indicators such as the RSI. Which is why the RSI indicator is one of the most misused MT4 indicators.

While it can be hugely beneficial when used correctly, it can be as harmful when misunderstood.

But that’s the thing with Forex trading. Because it’s so popular – and seems really simple – many novices jump right in, without doing their due diligence. It’s not about one indicator or another. It’s about your attitude.

Most first-time Forex traders fail for this exact reason. They’re impatient, hasty, greedy. They’re told it’s a get-rich-quick scheme and they believe it.

That’s not to say you can’t make money relatively quickly. But if you are to do so, you need to put in a lot of work.

Back to school

The prospect of going back to school might not sound that appetizing. You’re not looking for a whole new specialisation – just a side hobby, or extra way to make money.

Fortunately, good Forex broker’s now offer academies, which have simple courses on every aspect of the Forex market. Often, these include both text and video lessons, and cater to different levels of expertise.

Be careful not to get roped into paying for it, though. Most of these courses are free.

Trading responsibly

Ultimately, the first lesson is to trade responsibly. With that as a basis, you’re far likelier to succeed. All the tools are at your disposal, which is what makes Forex great, but don’t let their availability make you think it’s easy.

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