RSI Strategy

How to use RSI indicator

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What we will learn here

About RSI (General information)

How to use RSI in our trades

Different settings and how to set RSI

Different categories of Technical indicators

Totally we can divide Technical indicators into 3 different categories:

Trend-following indicators: (some example)

I. Moving averages (both simple and exponential),

II. MACD (Moving Average Convergence Divergence),

III. Parabolic SAR,

IV. ADX (Average Directional Movement Index)

Momentum indicators: (some example)

I. Relative Strength Index (RSI),

II. Stochastics,

III. Commodity Channel Index (CCI)

Volatility indicators : (some example)

I. Bollinger Bands and

II. ATR (Average True Range)

About RSI (General information)

The relative strength index (RSI) is a technical indicator as a momentum oscillator, measuring the velocity and magnitude of directional price movements. The relative strength index was developed by J. Welles Wilder and published in a 1978 book, New Concepts in Technical Trading Systems, and in Commodities magazine (now Futures magazine) in the June 1978 issue. It has become one of the most popular oscillator indices. Momentum is the rate of the rise or fall in price. The RSI computes momentum as the ratio of higher closes to lower closes: Symbols which have had more or stronger positive changes have a higher RSI than symbols which have had more or stronger negative changes. For each trading period, an upward change U or downward change D is calculated. Up periods are characterized by the close being higher than the previous close. Technically this is the way how this indicator works, however today we will talk about how we can use it and not going into mathematics calculation.

RSI Strategy – Setting

The RSI provides signals that tell traders to buy when the specific symbol is oversold and to sell when it is overbought

  The RSI is most typically used on a 14-day time-frame, measured on a scale from 0 to 100, with high and low levels marked at 70 and 30, 80 and 20 or 90 and 10. Our experience says you can have two RSI in same time by this setting: 14 days , 80 and 20.

  However, always keep in mind that all these indicators are just to help us to get a wider view to the market and they show us the momentum movements based on the calculation of market in past reactions and movements. Nothing is 100% in the market and makes sure always to use them as auxiliary indicators.

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