Trading strategiesTechnical analysis has a set of technical indicators and tools, and one of the most used indicator by traders is RSI(relative strength index). It is momentum indicator which is used to measure price change. This is indicator is used for deciphering strength of a price trend. Professional traders are the ones who never complicate things by applying too many indicators on chart, instead they use only a few and RSI, being a simple indicator is a favorite of many. A trader should never rely purely on price action and take the assistance of indicators as well. So, in this article we are going to see few strategies using RSI. Te CMC Crt eg [ar ml, yal ytd mh At © scanned ith OREN ScannerReflexive strength index or RSI indicator, developed by J. welles wilder, is a momentum indicator which is used to measure a security and securities’ historical performance. It is purely used for identifying trading trends in the stock based on speed and the direction of the particular stock. The RSI acts as an oscillator and moves up and down in the range between 0-100. The default look-back period of RSI is 14. However, this can be lowered to increase sensitivity or raised to decrease sensitivity. A common phenomenon for the RSI is that if it is below 20 it is likely to be oversold, i.e. the selling is now exhausted, signaling the buyers to buy the stock. ha lt nn ann acetal \nepo ; WW x Similarly if the RSI is above 80 it is likely to be overbought, i.e. the buying is now exhausted, signaling the sellers to sell the stock.‘overbought Mie) ergence in RSI? Divergence in RSI represents conflict or a type of disagreement between the price of the stock and RSI movement, there are two types of RSI divergence, bullish and bearish divergence. ¢ Bullish divergence: when the stock price is making lower lows but the RS! indicator is making higher lows it shows that the stock is gaining strength and will eventually turn the stock price up. © scanned ith OREN Scannere Bearish divergence: when the stock price is making higher lows but the RSI indicator is making lower lows it shows that the stock is losing strength and will eventually turn the stock price down. \ My \ iM, Phe ner v i A \ — Vw IOAN) Sey warThe use of the RSI indicator is to identify overbought and oversold stocks. It helps to cover profits in overbought stocks, it also indicates oversold stocks which are potential reversal stocks. RSI is also used for identifying the direction of the trend, RSI above 50 is considered as uptrend and RSI below 50 is considered as downtrend. Intraday retracement strategy using RSI: Retracement is a minor pullback or change in the direction of a stock with respect to its prior trend. As a trader, retracements are a way to buy or sell a stock when they are fairly priced. The strategy here is to combine the price retracements and RSI to take entries and exits from trade. Now, let's look at the strategy: e For buying opportunity, few conditions should be met:- If the stock is in uptrend and RSI crosses the center line from below at them same time, then wait for a price retracement. Let the retracement end and on the bullish reversal candle, take entry, its a very good buy signal. © scanned ith OREN Scannerrn | rn | a atl 7} i " Nal 7 n r ah hin vl nh ry " ee “yy inn hae lentes hh | I | “hy” A =a B ercuse sas7.00 9 [\" | mh |, I ‘ll ecole = | si: Lae la allan Hinntninnartd pbvvallfttttian e “= an " x o 0 ° a Sell- short below the bearish reversal candle Stoploss- above the high of the prior candle. © scanned ith OREN ScannerThis pullback intraday strategy is used by traders to enjoy the trend ride and churn out profits from it without getting trapped in against a trend. However, there is an advance strategy where RSI is combined with other technical indicator, i.e. moving average to get a conviction over the trend. Sometimes, RSI alone is not able to indicate the trend properly to traders and the day goes in vain. So to be able to asses the market trends for trading, we will be using moving averages with RSI in our advance strategy. Buy Signal When RSI moves above 50 with combination of another indicator like rise in volume and Moving average crossover of EMA (20) & EMA (50) and prices are trading above EMA 100). iad cay -4 Whenever price candle is closed below EMA (20) or bearish crossover of EMA(20) & EMA(50). Low of Previous candle, i.e. one candle prior to ‘Buy Signal candle’. © scanned ith OREN ScannerThis pullback intraday strategy is used by traders to enjoy the trend ride and churn out profits from it without getting trapped in against a trend. However, there is an advance strategy where RSI is combined with other technical indicator, i.e. moving average to get a conviction over the trend. Sometimes, RSI alone is not able to indicate the trend properly to traders and the day goes in vain. So to be able to asses the market trends for trading, we will be using moving averages with RSI in our advance strategy. Buy Signal When RSI moves above 50 with combination of another indicator like rise in volume and Moving average crossover of EMA (20) & EMA (50) and prices are trading above EMA (100). Profit Booking Whenever price candle is closed below EMA (20) or bearish crossover of EMA(20) & EMA(50). Low of Previous candle, i.e. one candle prior to ‘Buy Signal candle’.Below is the example of bitcoin on daily chart. Buy Signal When RSI moves below 50 with combination of moving average crossover of EMA (8) & EMA(21) and prices are trading below EMA(5). Profit Booking Whenever Price Candle closes above EMA (8) or bullish crossover of EMA(8) & EMA(21). High of Previous candle. i.e. one candle prior to ‘Sell Signal candle’.ee a) RSI often creates chart patterns which are not available on the price chart itself. Like, double tops ad double bottoms, flag and pole, etc. In an uptrend, RSI tends to remain in the 40-90 range and the range of 40-50 acts as a support. Whereas in downtrend, RSI tends to remain in the 10-60 range and the range of 50-60 acts as aresistance. The range is also called the RSI channel. © scanned ith OREN Scanner