What are the shortcomings of RSI in the technical analysis of spot gold investment?

In technical analysis tools, the relative strength index (RSI) is second only to the moving average in terms of breadth and accuracy. The RSI indicator actually calculates the ratio of the market price increase to the decline over a certain period of time. The increase and decline over a certain period of time are equal, the RSI value is equal to 50, the increase is greater than the decline, the RSI is greater than 50, and vice versa, it is less than 50. So what are the shortcomings of the RSI in the technical analysis of spot gold investment? The following editor will introduce it to you in detail.

First, it should be noted that the time parameters of the RSI indicator are different, and the results it gives will be different. Different gold investors have different personal preferences for the setting of the time period. Theoretically, although the RSI indicator of the shorter period is more sensitive, it has more rapid oscillations and poor reliability; although the RSI indicator of the longer period has reliable signals, the sensitivity of the indicator is not enough and the response is slow, so it often misses the phenomenon of buying and selling opportunities. In addition, since the RSI is calculated by the closing price, if the market volatility of the day is large and the upper and lower shadows are long, the RSI cannot accurately reflect the changes in the market at this time.

Second, the phenomenon of indicator passivation caused by overbought and oversold is prone to sending out wrong operation signals. In the middle stage of a "bull market" and a "bear market", the RSI value rises above 90 or falls below 10 from time to time. At this time, there will be vague and misleading information after the indicator is passivated. If you follow the indicator, you may make mistakes, miss profit opportunities or enter the market earlier and get stuck.

Third, the "divergence" trend between the RSI indicator and the gold price often lags behind. On the one hand, the market has reversed, but the "divergence" signal of the indicator may lag behind; on the other hand, under the influence of various random factors, sometimes the "divergence" phenomenon occurs several times before the market really starts to reverse. At the same time, when judging the "divergence" phenomenon of the indicator, the number of "divergences" corresponding to the real reversal is inconclusive. One, two or three divergences may have trend changes, which is difficult to confirm in actual operation.

Fourth, when the RSI value fluctuates around 50, the indicator often loses its reference value. Generally speaking, the RSI value between 40 and 60 is not very useful. According to the application principle of RSI, when the RSI breaks through the 50 demarcation line from below 50, it means that the price of gold has strengthened; when the RSI breaks through the 50 demarcation line from above 50, it means that the price of gold has weakened.

But the reality is that investors are often confused. The phenomenon that the price of gold does not fall after changing from strong to weak, and does not rise after changing from weak to strong is quite common. This is because under normal circumstances, the RSI will take the lead in sorting out and strengthening or weakening when the direction of the broader market or individual stocks is uncertain and consolidating.

In practical application, to overcome this shortcoming, the RSI parameters can be set smaller when the price changes are large and the fluctuations are frequent; when the price changes are small and the fluctuations are infrequent, the RSI parameters can be set larger.

That's it.Decode Forex PlatformThe small edition provides you with an introduction to the shortcomings of RSI in the technical analysis of spot gold investment. I hope it will be helpful to you. If you want to learn more about trading, please pay attention to the technical analysis column.