RSI Continuation Signals

Relative Strength Index Trading Signals

See Example Chart below - Video will be posted soon.

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The Relative Strength Index can give us many different signals or clues as to what price may be doing in the future.  The most common signal that everybody looks for is divergence at the highs and lows.  We will discuss these signals and teach you how to trade the Forex with these signals in another section of this site.

Here we are going to talk about what I like to call Positive and Negative Continuation Signals.  I call them this because they tells us if an FX pair we are trading will continue it's trend.

A Positive Continuation happens when a FX pair is trending higher and has a pullback or consolidation.  If the pullback in price stays above the previous price pullback but the Relative Strength Index makes a lower low below its previous pullback low then we have a possible Positive Continuation in the works.  I say possible because we have to wait for conformation.

In the chart below I have marked five of the Positive Continuation signals.  There are actually seven that I see looking at the chart.  After studying the five I have marked you can test your eyes and see if you can spot the other two that I did not mark.




1. - In example one price had divergence with the Relative Strength Index on the lows made during the week of May 20 and the week of May 27th.  This divergence made price move higher into the end of the week.  As you can see in the example, price pulled back holding its previous lows while the Relative Strength Index could not hold the lows from the same pullback.

 The trade set up in this would be putting a buy order at the recent highs with a stop at the lows with a 2-1 target for the 1st position and trail the rest of the position.

2. -  In example 2 the set up is the same as in example 1 with the exception that the RSI was over 70 and many people were probably shorting the pair because it was "Overbought".  Unfortunately for the shorts there was a Positive Continuation Signal and price snapped higher and the Relative Strength Index went deeper into the "Overbought" territory.

You can use the same trade set up here as in example 1.  Another entry is when price and the RSI bounce and then pullback and hold the previous low then buy on the break of those highs.

3. - Example 3 is showing the Relative Strength Index creating new lows as price is consolidating before making new highs again. 

3.5 - OK, there is no 3.5 shown on the chart.  It is actually one of the examples I mentioned earlier that I did not point out.  I think it is important here so I am going to talk about it.  The Positive Continuation Signal happens during the lows of June 11 and June 13.  The Relative Strength index made new lows but price did not and price made another closing high.

One thing I wanted to point out here is that these signals tell us that we can expect new closing highs.  What it does not tell us is how much higher price is going to go and we need to use other tools for that.

Another thing you can do with these Continuation Signals is use them as trailing stops.  If you moved your stop up to the low of the 3.5 example you would have been stopped out at 1.56225 on this trade that started from divergence at the lows around 1.5000.

Warning Signs of a Top

Warning 1: Note the huge divergence between price and RSI on the highs made on June 6th, June 13th and on June 16th.  This is a serious warning that price is getting tired.  We will touch on this more in the RSI Divergence page later. 

Warning 2:  The lows the Relative Strength Index made in example 3.5 took out the lows of the Positive Continuation Signal made in example 1.   

Warning 3: If you look at the price lows made between June 6th and June 11 and the Relative Strength Index lows made at the same time and compare them to the the lows made in price and the Relative Strength Index between June 13 and June 18th you could make a case for a Positive Continuation Signal.  The problem is it is failed and is another sign of a top.

4. - Example 4 actually has two  Relative Strength Index signals in one.  You have the Positive Continuation Signal shown by the green trend line and the divergence shown by the red trend line. 

The set up I would play is to wait for price to beak the highs within the diverging lows to get long with the stop at the lows.

5. - I had mention earlier that there were 7 Positive Continuation Signals on this chart but now I see 8.  I showed you one with the 3.5 but there is another within example 4 and yet another beween example 4 and 5.   I will let you find those to test your eyes and test your knowledge.

Example 5 was a nice  Positive Continuation Signal as price spiked hire and then had a slow sloppy and shallow pullback holding above its previous lows while the Relative Strength Index did the same thing only it didn't hold it lows and price moved higher again.

Relative Strength Index Chart showing Positive Continuation Signals