RSI( RELATIVE STRENGTH INDEX) INDICATOR:
Relative Strength Index or the RSI sign is the most popular part of the “Oscillator” breed of technical indicators. RSI was created by J. Welles Wilder, to calculate relative changes which take place in between the high and low closing prices. The Traders use this Entry and exit point at the Forex market places.
The RSI is categorized as an Oscillator, as the resultant curve varies when the values are at 0 and 100. The lines of the RSI are normally drawn at both the values of 30 and 70 as a caution signal. Any value which exceeds 85 is regarded as a selling signal or a strong overbought situation, and suppose the curve drops below 15, it is a buying signal or a strong over sold situation generates.
Formula of RSI
The Metatrader4 Trading platform typically makes use of this RSI analysis, and the formula calculation series comprises of the simple steps:
1. Select a predefined period of “X” let the standard value be “14″, even though value 8 or 9 has a tendency to be more responsive.
2. Compute Relative strength = Average of “X” periods up closes/Averages of “x” periods down closes
3. Relative Strength Index = 100- (100/ (1 + Relative strength))
The RSI is a collection of a single varying curve. The traders will at time append an exponential moving average in Red to develop the value of the trading signs. The Blue line in the chart is the RSI; the Red line denotes “EMA” for the period “8″ variable. The RSI is considered as a major indicator, as its signal anticipate for a possible changing trend. The demerit is however; the fact that the timing is not essentially an outcome of the RSI, the cause for this is that the lagging moving average is to verify the RSI signals.
Large flow in the price change can be the reason for the RSI to produce untrue signals. It is evident that the RSI with other indicator will be effective. Wilder had a strong belief that the indicator was open when its values deviate from the present prices in the market place.
CCI (COMMODITY CHANNLE INDEX) INDICATOR:
The Commodity Channel Index (CCI) Indicator was developed by Donald Lambert in 1980, and is a traditional technical indicator. It is based on the average of the deviation between the Moving Average and the Typical Price (Average of high, low and close).
It is commonly used to identify periods where price is overbought and oversold – where the price is far from the Moving Average. It is also use to gauge trend direction by looking if it is positive or negative.
you will see the two main levels: +100 and -100. When indicator`s line is above the +100 mark, the market is overbought; when indicator`s line is below the -100 mark, the market is oversold. To be honest, CCI is an oscillator, but many trading platforms (for example, Meta Trade 4) place it in the trend indicators’ section.
It is really important to point out that divergences are formed pretty often in the CCI. A divergence is a difference in the direction of the price and the indicator. For example if the price is falling, but the CCI is showing upward movement, then we have adivergence. This phenomenon is actually pretty useful for the traders, because this is a strong trading signal. Whether it is a sell or buy signal, it depends. You have to take a look at the overall state of the market, to check for other signals and if you get a sell confirmation, then this is enough proof for a profitable sell. Generally speaking, this is a very strong signal and is important to know that it is also a highly volatile indicator; that is why we recommend using it in low-volatile cycle market, where the trend is clear. Most trader combine CCI with the Williams’s Oscillator and we really like this strategy. However, CCI is generally used in the commodity market. Carefully set your trading strategy and use CCI wisely.
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