Second, choose an RSI level to identify buying or selling opportunities within the bigger trend. I'm a Veteran trader Finance Degree from OSU and always still learning books audible and purchased Warrior Trading Program so much new and useful information that I bought monthly chat to watch them apply principles they teach and to get some new fresh Ideas. Place this indicator on a daily chart and look for points when the indicator falls below five, for example. Later the RVI finally has a bearish cross and we close our trade. In Response to these awards, Warrior trading has been constantly pu in the spotlight as being an established educator in the finance sector Hope to see you all in the chat room! Maybe better said is…… Is there a suggested or posted exit rule if the position does not close above 65……or is the exit rule to wait until that happens??
4 Simple Relative Strength Index (RSI) Trading Strategies We will buy or sell the stock when we match an RSI overbought or oversold signal with a supportive crossover of the moving averages. We will hold the position until we get the opposite signal from one of the two indicators or a divergence on the chart. Some of the successful RSI.
Find A Stock That’s Trending Or Sloping Strongly Either Up Or Down
Now I will show you how to combine the relative strength index with the relative vigor index. In this setup, I will enter the market only when I have matching signals from both indicators. I will hold the position until I get an opposite signal from one of the tools — pretty straightforward. First, we get an overbought signal from the RSI.
Then the RSI line breaks to the downside, giving us the first short signal. Two periods later, the RVI lines have a bearish cross. This is the second bearish signal we need and we short Facebook, at which point the stock begins to drop.
After a slight counter move, the RVI lines have a bullish cross, which is highlighted in the second red circle and we close our short position. This trade generated a profit of 77 cents per share for a little over 2 hours of work. Facebook then starts a new bearish move slightly after 2 pm on the 21 st. Unfortunately, the two indicators are not saying the same thing, so we stay out of the market. Later the RSI enters oversold territory. A few periods later, the RSI generates a bullish signal.
After two periods, the RVI lines also have a bullish cross, which is our second signal and we take a long position in Facebook. Just an hour later, the price starts to trend upwards. Notice that during the price increase, the RVI lines attempt a bearish crossover, which is represented with the two blue dots. Fortunately, these attempts are unsuccessful, and we stay with our long trade.
Later the RVI finally has a bearish cross and we close our trade. Here I will use the RSI overbought and oversold signal in combination with any price action indication, such as: In order to enter a trade, I will need an RSI signal plus a price action signal — candle pattern, chart pattern or breakout.
I will hold every trade until I get a contrary RSI signal, or price movement that the move is over. The chart image starts with the RSI in overbought territory.
After an uptrend, the BAC chart draws the famous three inside down candle pattern, which has a strong bearish potential. With the confirmation of the pattern, we see the RSI also breaking down through the overbought area. We match two bearish signals and we short BAC. The price starts a slight increase afterwards. This puts us into a situation, where we wonder if we should close the trade or not. Fortunately, we spot a hanging man candle, which has a bearish context. We hold our trade and the price drops again.
Look at the three blue dots on the image. These simple dots are enough to build our downtrend line. After we entered the market on an RSI signal and a candle pattern, we now have an established bearish trend to follow! The trend resists the price yellow circle and we see another drop in our favor. After this decrease, BAC breaks the bearish trend, which gives us an exit signal. We close our position with BAC and we collect our profit.
This trade made us 20 cents per share. If you are new to trading, combining the RSI with another indicator like volume or moving averages is likely a great start. Pairing with the indicator will give you a set value to make decision and removes a lot of the gray areas associated with trading. Once you progress in your trading career, you will want to look to methods using price action that are more subjective but being able to apply techniques specific to the security you are trading will increase your winning percentages over time.
But again, this level of trading takes a ton of practice over an extended period of time. I think it's important to highlight where indicators can fail you as a trader and the RSI is no different.
The textbook picture of an oversold or overbought RSI reading will lead to a perfect turning point in the stock. This is what you will see on many sites and even earlier in this very post. As you see, there were multiple times that BFR gave oversold signals using the relative strength indicator. Yet, the stock continued higher for over three hours. Simple, you have to include a stop loss in your trade. Get ready, because this will be a common theme as we continue to dissect how the RSI can fail you.
The tricky thing about divergences is that the reading on the RSI is set by price action for that respective swing. To this point, look at the above chart and notice how after the divergence takes place the stock pulls back to the original breakout point. But then something happens, the stock begins to grind higher in a more methodical fashion. Instead of a single calculation we will be computing a running daily total of the 2-period RSI. In this case, we are going to use the total of the 2-period RSI for the past three days.
When you keep an accumulated value of the RSI 2 you smooth out the values. You can see how much smoother our new indicator is. This is done to reduce the number of trades in hopes of capturing the quality trades. It does rather well. So which one is better? The accumulated strategy worked as intended. As a bonus, the drawdown was slightly smaller. While both systems do a fantastic job, the accumulation strategy may do a slightly better job. The EasyLanguage code is available below as a free download.
There is also a TradeStation workspace. Please note, the trading concept and the code as provided is not a complete trading system. It is simply a demonstration of a robust entry method that can be used as a core of a trading system. So, for those of you who are interested in building your own trading systems this concept may be a great starting point. An additional article was published in which updates the RSI system and explores it in more detail. Furthermore, 52 trades in 15 years is far from a significant sample.
Thanks for the simple system. I do use RSI and love them. Thanks again for sharing! This is a frictionless test […]. Hi Chris, Quick question on this. I would like to know where the PDF link is?
I am not seeing it on the post anywhere. I found the PDF link here: Could re-upload your PDF please? Your Dropbox link doesn't work.
What is the RSI indicator?
The relative strength index (RSI) is most commonly used to indicate temporary overbought or oversold conditions in a market. An intraday forex trading strategy can be devised to take advantage of. Backtest a simple RSI trading strategy with this web-connected spreadsheet – play a fantasy stock trading game! The spreadsheet downloads historic prices for your chosen ticker, and some VBA triggers buy or sell points when the relative strength index (RSI) rises above or falls below user-defined values.. Get it from the link at the bottom of this article. In Stock Trading Strategies That Work, Connors looks at all stocks with cumulative RSI readings below 10 with an average daily volume of more than , shares and a stock price above $5.