#8: RSI Indicator Secrets

January 20, 2020 | By More

how to use rsi indicator for day trading

In the NZD/USD chart below, RSI and MACD both signal momentum shifts in close proximity to one another. Traders watching this currency pair closely might identify RSI’s signal, then wait to see if MACD aligns—and potentially open or close a position as a result. While RSI offers value in identifying profit opportunities, it can also be used to time your exit from a position, thereby maximizing your profits. Velocity is important when looking to capitalize on forex price movement.

how to use rsi indicator for day trading

On trading platforms, the RSI chart is located beneath the price chart. In some instances, the RSI value is located on the chart relative to the selected stock price. We can consider that when the value of a financial instrument rises too much, too fast – the stock price can be referred to as overbought. It makes sense that when a stock price drops suddenly, its possibility of being oversold is worth considering.

Check out the EFC Indicator we developed that trades the RSI 80-20 strategy for you!

Our experience is that this is a signal that serves little practical use for traders. The indicator is in the lower pane and clearly shifts from oversold to overbought quite frequently. It’s of course cumbersome to do the calculations, but that’s why we have spreadsheets and trading platforms. All software packages have the RSI built into their charting, so there is no need to use this formula, except for understanding how it works. You’re looking to buy during this “extreme pessimism” where traders, investors are panicking and are selling their holdings.

Can any trader have success using the relative strength index?

A: The relative strength index (RSI) provides short-term buy and sell signals – which doesn’t make this a strong indicator for longer-term or position traders. If you make shorter-term trades with the intent to hold for days, weeks, or months, the relative strength index can help you evaluate which direction stocks may head over the short term.

The chart above is still GE’s 15-minute chart, but the particular trading date has moved further to how to use rsi indicator for day trading the past. Observe the moving averages applied to the RSI – they are moving averages of the RSI.

What are the best settings for swing trading?

This is a 10-minute chart of the popular day trading market, S&P 500 E-mini . J. Welles Wilder is a giant in the field https://www.bigshotrading.info/ of technical analysis. In “New Concepts in Technical Trading Systems”, he introduced an array of trading indicators.

how to use rsi indicator for day trading

Plot a 200-period simple moving average to determine the overall price trend. The second example shows Apple trading above its 200-day SMA for most of the timeframe. It would have been difficult to prevent losses on the first five because AAPL zigzagged lower from late February to mid-June 2011. The second five signals fared much better as AAPL zigzagged higher from August to January.

Step One: Find the currency pair that is showing a high, the last 50 candlesticks. (OR low depending on the trade)

Most traders use the relative strength index simply by buying a stock when the indicator hits 30 and selling when it hits 70. Readings above 50 are normally consistent with securities in an uptrend. Readings below 50 are bearish and consistent with downtrends.

  • Finally, Cardwell discovered the existence of positive and negative reversals in the RSI.
  • The relative strength index is one of the most popular oscillators in all of trading.
  • However, you can always tweak this setting by lengthening or narrowing down the period.
  • In other words, Apple moved to new lows after the initial buy signal and then rebounded.
  • This is done by dividing the average gain with the average loss during a particular period.

Category: Forex education

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