Rsi trade setups

If you were looking for the industry relative strength, then look no farther, just click the link. This link connects you with stock relative strength, part 1 of 2. Relative strength stocks, part 2. Trading relative strength A number of research studies might float your boat.

Give them a look. Find out more. My novels:. The RSI Indicator is one of the best technical indicators for traders. It involves price action analysis, which will help you land great trade entries!

However, this strategy strictly trades reversals that occur in the last 50 candles. Read the entire article for all of the RSI trading rules and trading tips. Understanding the rules of these trading strategies will help you trade this strategy for the highest level of success.

We also have training for the best Gann Fan Trading Strategy. Below, we will discuss the most important things you need to know about trading with the Relative Strength Index RSI indicator.

Using the Relative Strength Index, you can identify whether a price trend is overbought or oversold. We will discuss many things in this article, including RSI vs.

RSI is one of the most used trend indicators you will find online. The RSI is a key component of many trend trading strategies. No one else shares how to trade it with step by step instructions. You will only find detailed instructions here.

This can also be used with your forex trading strategies if it is your market of choice. RSI stands for the relative strength index.

This will show you an overbought signal. This will also show you when the price is in oversold territory. I recommend using this indicator for the RSI overbought position because it increases your win rate. Before you start trading with our entry signal, we will cover a few key tips to help improve your trade.

Also, read our winning news trading strategy , for more information. First, remember this should incorporate the daily charts to find the best opportunities. Our Strategy should be used with multiple time frames to dial in your entries and make them more accurate. Second, it is essential to use the RSI signal. You will find the price breaking critical levels for the best possible entries. If you combine this indicator with pivot points and a good candlestick pattern, you will hit trading home runs regularly.

You will be shown many images in this article to learn how to sell signals or buy signals. This article also serves as a beginners guide for everything related to the relative strength index RSI. We took a lot of time to create this content with details and examples to help you become better traders. This strategy identifies a break of a trend and takes advantage of the movement in the opposite direction.

Kind of like our Trend Breaker Strategy. In this article, we will review a simple trading strategy using the RSI indicator. You are going to benefit from this strategy by learning to trade divergence. Find a low-risk way to sell near the top or buy near the bottom of a trend. Swing traders attempt to capture medium-term changes in the trend over a period of a few days. And, the RSI indicator is a great additional tool to help us gauge the constant ebb and flow of the price action.

However, before we get into that, we need to make sure the RSI indicator is in tune with the medium-term swing trends. The best setting for swing trading is 20 periods. The RSI 20 periods encompass a full month of price action activity, which is just enough to be in tune with the medium-term trends. The break of the RSI trendline will be used as a buy and sell signal as follows:.

For intraday signals, we need to make the RSI indicator more sensitive to the short-term price action. Otherwise, you might end up with a fast-paced RSI that is not that reliable. You probably never heard you can overlay two RSI oscillators with different periods on the same window. But, this is possible with most trading platforms including TradingView and MetaTrader 4. They also deserve some nuggets. Although crypto traders can easily use the above RSI trading strategies, we have something that is adjusted to the volatility of the cryptocurrency market.

The RSI indicator is one of the most popular indicators used by traders in any market, such as stocks, foreign exchange forex , futures, options, and more. This indicator was developed by Welles Wilder around It quickly became one of the most popular oscillator indicators for traders in financial markets.

This momentum indicator can fluctuate between 0 and providing overbought and oversold signals. The formula for this indicator is a bit complex:.

I could explain this whole process to you. However, I will spare you the details. I want to share this with the mathematicians that are reading this and enjoy equations. You can do a quick google search if you would like to learn more. The default settings for this indicator is a smoothing period of We are going to change that setting to 8. Make sure you turn this setting before you jump into this strategy.

The reason I prefer eight instead of 14 is because the RSI will be much more responsive. This is critical when we are looking for overbought or oversold conditions and readings. Also, go into the RSI setting and change the lines in the indicator to 80, You will learn more about this later. This indicator will be the only indicator we use for this strategy. This is because we have a strict set of rules to follow before entering a trade.

And these rules will, without a doubt, validate a reversal for us to open a trade. Below is another strategy on how to apply technical analysis step by step. Before you use this strategy, make the following changes to the RSI indicator:. The Trading strategy can be used for any period.

This is because there are reversals of trends in every period. This can be a swing trade, day trade, or a scalping trade. As long as it follows the rules, it is a valid trade. We also have training for Forex Basket Trading Strategy.

In this step, we only need to ensure it is the low or the high of the last 50 candles. Once we determine this low or high, then we can move on to the next step. I drew vertical lines on the price chart so you can see the 50 candle low that we identified. If you need to use horizontal lines on your chart to verify that the candle has closed the lowest of the last 50, you can do so. This is not necessary but may be helpful for you to do and see how strong the trend is.

When we find a 50 candle low, it needs to be coupled with RSI reading of 20 or lower. Below we have a reading that hit the 20 line on the RSI and was the low of the last 50 candles. Remember that this strategy is a reversal strategy. It is going to break the current trend and move the other direction.

The second price low must be below the first low. Although, the RSI Trading indicator must provide a higher signal than the first. Remember that divergence can be seen by comparing price action and the movement of an indicator.

If the price is making higher highs, the oscillator should also be making higher highs. If the price is making lower lows, the oscillator should also be making lower lows. If they are not, that means price and the oscillator are diverging from each other. We have rules in place that will capitalize on this divergence so that we can make a significant profit.

Keep in mind that this step may take time to develop. It is very important to wait for this second low because it gets you in a better trade making position. That is the Divergence. Remember that our example is a current downtrend looking to break to the upside. If this was a 50 candle high, we would be looking at the exact opposite of this step.

Once this criterion has been met, we can go ahead and look for entry. This is because the charts are showing us that a reversal is coming soon. The way you enter a trade is very simple. You wait for the price to head in the direction of the trade and wait for a candle to close above the first candle that you identified that was previously 50 candle low.

If you are struggling with this step, save the picture for reference. This will help guide you when looking for a trade.

In trading, the terms oversold and overbought are terminology that describes the moment when a market has moved to much, and will soon revert. This tendency is called mean reversion, and is especially prevalent in equities, although it can be found in many more markets. If the market is oversold, it means that it has moved too much to the downside, while overbought refers to the opposite condition.

However, in our testing, we have found that the RSI not only works for mean reversion, but also for momentum trading. The most common way of doing this is to require the RSI to cross below or above a threshold. In the image below you can see what it looks like when the RSI crosses the overbought and oversold thresholds.

The purple area covers the range from Taking mean reversion trades many times is like trying to catch a falling knife. The price could very well continue to plunge after we enter the trade. Of course, this is nothing spectacular. Every type of trading strategy will have its winners and losers. In that regard, seeing some trades just turn red with the falling market is completely normal. However, where things are becoming a little tricky, is in that we are dealing with a type of trading strategy that gets its edge from that the market has fallen excessively.

Trading mean reversion strategies , be it with or without RSI, requires that we either use very large stop losses, or no stops at all. How counterintuitive not using stop losses might sound, it does work, given that you are very careful about how much you risk on every trade.

We have solved this by only allocating a small portion of our trading strategies to mean reversion strategies. This is possible through algorithmic trading , that lets us trade or more strategies at the same time! If you want to learn more about how to trade like this, why not read our complete guide to algorithmic trading!

The most common settings for the RSI indicator is a days lookback period with the oversold threshold set at 30 and the overbought threshold set at Sometimes, different trading styles may require different RSI settings.

We encourage everyone to experiment to see what seems to work the best. If a 10 day lookback period consistently appears to be better than the default day, there is no need to stick with the latter.

However, you may also look at adjusting the threshold values to account for rising and falling markets. But all this is very general advice. You may wonder what we have we found in our own testing. Well, in our experience, the period RSI tends to perform quite poorly.

Most often this means using a lookback length set to around And for the oversold and overbought thresholds, these may also have to be adjusted for the increase in responsiveness that comes with a shorter RSI.

That means moving the oversold threshold lower maybe to 15 and the overbought threshold higher perhaps to The best settings vary with the market, trading strategy, and timeframe.

In order to find out what works well for your particular scenario, backtesting is a must! It could be that we just need to think a little differently, and turn the logic upside down.

That is, instead of buying at low values, we buy at high values. What we then effectively have done is to take on a trend following approach, which is the opposite of mean reversion. In other words, we ride the trend instead of going against it in the anticipation that it will turn around.

In our own testing, we have found that the RSI shows a lot of merit in this field as well, in certain markets. In this part of the article, we are going to explore some of the strategies that are popular among new traders. However, you should keep in mind that most traders are unsuccessful, with the corollary that common trading strategies also tend to not work so well. In most cases, the author has just put together some nice looking indicators or logics, and presents them as working trading strategies.

We know from experience, after having backtested many of these strategies, that close to every strategy of this kind is garbage. Below, we will present some examples of popular concepts involving the RSI indicator. At least it does work, although perhaps not well enough for us to trade it ourselves. The rules are simple: Enter if the RSI crosses below 30, and exit when it crosses above So, we wait for a market pullback and then buy in anticipation of a coming correction, that will take the security to new heights.

The yellow circle at the bottom signals our entry, and then we wait for the RSI to rise above 70 to exit the trade. As you see, the market has to move quite a bit for us to exit the strategy. This will lead to that quite a few trades will start to go in your direction, but revert before your exit level is reached. One way of addressing this issue could be to lower the sell threshold. For instance, if we sell at 50 instead of at 70, then more trades will end up as winners.

What does RSI 14 mean? That means the indicator is calculated using the last 14 candles or last 14 bars on the price chart. Using a shorter timeframe , for example 5-periods will cause the RSI reach extreme values above 70 or below 30 more often.

By the same token, longer timeframe settings will see the RSI indicator reach above 70 or below 30 less frequently. The below shows how to change the various settings in the FlowBank trading platform. The developer of the RSI, J. Welles Wilder Jr. But other RSI settings can also be good to trade depending on whether you are trading forex, cryptocurrencies or other financial markets and the timeframe you are trading off.

Looking at the chart below, you can compare a day RSI vs. It can be observed that the period RSI gives several signals, the 5-period RSI is very frequently giving trading signals and the period RSI gives just one very good trading signal throughout the time period selected. Although other RSI settings are certainly possible and potentially profitable, since Wilder created the indicator, we should take time to note why he think his indicator is best setup with periods.

Firstly, periods is like a fortnight or half a month. Although markets are not normally open 7 days per week so 14 periods does not equal two weeks, this timeframe has a certain basis in nature relating to the time it takes the moon to travel around planet earth. These natural phenomenon like the Fibonacci sequence have a way of working in trading markets.

In fact, Wilder says in his book that he tested multiple time periods and found 14 to be the most effective for his swing trading style using daily timeframe charts. So his choice of technical indicator settings was based on real evidence from his day trading. The way Wilder recommends using the RSI is by using the 30 and 70 levels in the oscillator as oversold and overbought levels respectively.

This means that when RSI falls below 30, you aim to buy the financial security that has been sold too much and when the RSI reaches over 70, you aim to sell the financial asset that has been bought too much. However these are not the only options. Is a high RSI good or bad?