Rsi and Momentum Indicators — Understanding Price Charts

What Momentum Indicators Try to Measure

While moving averages focus on price direction, momentum indicators try to measure the speed and strength behind recent price changes — essentially, how fast and how forcefully price has been moving in one direction.

The Relative Strength Index (RSI) is one of the most widely used momentum indicators in forex trading.

[Read the lesson: RSI and Momentum Indicators](/learn-to-trade/understanding-price-charts/rsi-and-momentum-indicators)

How RSI Is Scaled and Read

RSI is plotted on a scale from 0 to 100 based on the size of recent gains versus recent losses over a chosen lookback period (commonly 14 periods). Readings above 70 are often labeled 'overbought,' suggesting price has risen quickly and may be due for a pause or pullback. Readings below 30 are often labeled 'oversold,' suggesting price has fallen quickly and may be due for a bounce.

These labels describe a statistical tendency based on recent momentum, not a rule that price must immediately reverse once a threshold is crossed.

**Reading an RSI Value:** Suppose USD/CAD has risen sharply over the past two weeks and its 14-period RSI reads 78. This tells a trader that recent gains have been unusually large and fast relative to recent losses — a signal worth noting, but not proof that the rally must stop immediately. Strong trends can keep RSI in overbought territory for extended periods.

[Read the lesson: RSI and Momentum Indicators](/learn-to-trade/understanding-price-charts/rsi-and-momentum-indicators)

Divergence: A Closer Look

Divergence happens when price makes a new high (or low) but RSI fails to make a correspondingly new high (or low). For example, if price sets a new high while RSI sets a lower high than its previous peak, some traders view this as a sign that underlying momentum is weakening even though price is still climbing.

Divergence is watched closely by many traders, but it can persist for a long time before any reversal occurs, or may not lead to a reversal at all — it's another probability-based clue, not a trading signal to act on alone.

[Read the lesson: RSI and Momentum Indicators](/learn-to-trade/understanding-price-charts/rsi-and-momentum-indicators)

Combining Momentum With Other Tools

Because RSI and similar momentum indicators are calculated from the same price data shown on the chart, they tend to work best as a supporting confirmation tool alongside trend analysis and support/resistance, rather than as a standalone decision-maker.

[Read the lesson: RSI and Momentum Indicators](/learn-to-trade/understanding-price-charts/rsi-and-momentum-indicators)