1. Structure

RSI = 100 - 100 / (1 + RS)

RS = n-day average UP / Average n-day decrease DOWN

This recipe was created by Welles Wilder. Initially, he used a 14-day gain/decrease average of 14 days, but after that, he noticed that this indicator was too late, so he replaced it by calculating:

14-day increase average = (13-day average increase x13) + today's value increased

14-day decrease average = (13-day decrease average x13) + Today's decrease value

And so far the indicator has been smoother and used a lot by traders in the world.

2. Divergence

In theory from the book is quite verbose. It should only be basically into 02 divergence forms for easy visualization and application:

Positive divergence:

The image above shows the divergence of the RSI indicator for an uptrend on a downtrend. Called positive divergence.

So what is the effect of positive divergence? Yes, it often shows up on charts everywhere, from sideways, rising to fall prices. But here you should just note it will have a huge effect on the price down and the trend is an uptrend. Example: Frame H1 is the main uptrend, M5 is on a downtrend (the rebound of an uptrend) and positive divergence appears, it is the first sign to identify a downtrend on the current M5. signal reversal following the main trend.

Negative divergence:

It's the opposite of positive divergence, everyone sees above to understand!

RSI channel

1. Concepts:

The RSI channel is the line that draws the highs and lows of a price trend

As in the previous post, I have defined an up and down trend already. Then, the up and downtrend of the RSI channel also indicate the fluctuation of the indicator in this range, specifically:

  • Price increase channel: (fluctuations of the indicator from 40 to 100)

The figure above is a concrete example of a bullish channel, it is based on an indicator of a price range starting at 30 (this is the initial signal of a trend reversal from the previous down channel).

Here you can plot the current price trend (if you want to trade short to medium term) or draw from the beginning of the trend (if you want to trade long)

  • Declining price channel: (oscillation of the indicator from 0 and up to 60)

This is the bearish channel drawn by the downtrend on h1 of the UJ pair.
With a brief content introducing the price channel, divergence, and trend determination according to RSI, everyone has a preliminary idea of how to enter an order by channel, right?
But please drill because following the top/bottom of the RSI channel involves a lot of risks when people do not fully understand it. The time commonly used for medium-term rating is tf w1, d1, h1. We usually use 2 frames h1 and m5 to enter and exit orders.