RSI is the most referred, famous and discussed technical indicator.
You will find RSI's mention in almost every trade talk!
Every website, every channel, every forum refers to RSI every now or then.
Whenever anyone talks about RSI, all they have in mind is the 70/30 boundary!
Above 70 they take the stock or market as overbought
and below 30 they they take them as oversold!
That is all!
At best this 70/30 line is replaced with a 80/20 line!
Everyone starts waiting for the price to fall when rsi crosses above upper line
And they start waiting for the price to rise when rsi crosses below the lower line!
I don't know when or how it happened
but RSI 70/30 overbought/oversold myth has become a monster by now.
A wrong impression has been created.
Almost every trader has started looking for the wrong thing while using RSI.
They feel secure to short above 80 or 70 rsi and long below 30 or 20 rsi....
...and get trapped!
Given below are the 7 facts about RSI which are much more important than the 70/30 or 80/20 lines....so important that I look only at these rather than 70/30 lines!
1. Failure Swing Point
= If you must learn only one thing about RSI, this is it.
2. Retreat
= Just check how much the price has retreated versus the retreat of the rsi. This holds vital info.
3. Rally v/s Ranging
= RSI trigger points change depending upon whether the markets are trending or ranging.
4. Pro v/s Anti-Rally
= RSI effectiveness changes depending upon whether we are trading pro the trend or anti the trend!
5. RSI v/s William%R
= Like a Pizza with Cola, RSI's best friend is William % R. These two indicators make terrific company. You just can't mistake the signal when two are together!
6. Divergence
= This is the point where RSI rocket starts its reverse counting at the end of the rally (and not the 70 or 80 line!)
7. Outer RSI
= It matters less where the rsi stands. What matters more is where the outer RSI stands. e.g. RSI 14/1day on 3 month chart is the outer RSI of RSI 14/30min on 1 month chart!
You will find RSI's mention in almost every trade talk!
Every website, every channel, every forum refers to RSI every now or then.
Whenever anyone talks about RSI, all they have in mind is the 70/30 boundary!
Above 70 they take the stock or market as overbought
and below 30 they they take them as oversold!
That is all!
At best this 70/30 line is replaced with a 80/20 line!
Everyone starts waiting for the price to fall when rsi crosses above upper line
And they start waiting for the price to rise when rsi crosses below the lower line!
I don't know when or how it happened
but RSI 70/30 overbought/oversold myth has become a monster by now.
A wrong impression has been created.
Almost every trader has started looking for the wrong thing while using RSI.
They feel secure to short above 80 or 70 rsi and long below 30 or 20 rsi....
...and get trapped!
Given below are the 7 facts about RSI which are much more important than the 70/30 or 80/20 lines....so important that I look only at these rather than 70/30 lines!
1. Failure Swing Point
= If you must learn only one thing about RSI, this is it.
2. Retreat
= Just check how much the price has retreated versus the retreat of the rsi. This holds vital info.
3. Rally v/s Ranging
= RSI trigger points change depending upon whether the markets are trending or ranging.
4. Pro v/s Anti-Rally
= RSI effectiveness changes depending upon whether we are trading pro the trend or anti the trend!
5. RSI v/s William%R
= Like a Pizza with Cola, RSI's best friend is William % R. These two indicators make terrific company. You just can't mistake the signal when two are together!
6. Divergence
= This is the point where RSI rocket starts its reverse counting at the end of the rally (and not the 70 or 80 line!)
7. Outer RSI
= It matters less where the rsi stands. What matters more is where the outer RSI stands. e.g. RSI 14/1day on 3 month chart is the outer RSI of RSI 14/30min on 1 month chart!
2 comments:
Dear Sir,
Please elaborate more on the first two point of RSI viz. failure swing point and retreat.
Appreciate your time and efforts.
Best regards,
S.Kumar
Very well explanation about RSI. Thank you.
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