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7 Simple RSI Trading Strategies

While RSI and MCAD are both important indicators for investors to generate signals for entering and exiting trades, they can sometimes give contradictory information. This is because they draw their data from different places. RSI looks at price movement and overall momentum, while MCAD is looking at moving averages.

rsi trading

If the downtrend is unable to reach 30 or below and then rallies above 70, that downtrend has weakened and could be reversing to the upside. Trend lines and moving averages are helpful technical tools to include when w2together using the RSI in this way. If it doesn’t look like trends are emerging below 30 and past 70, you may need to tune your range for signals. Making adjustments can help you find the right values for finding signals.

RSI 50 Crossover Trading Plan

Keep an eye out for when RSI doesn’t match up with the price movement of an asset. This is key for finding the divergence and changing your orders to keep your profits intact. You need to look at other indicators and the overall price movement before you purchase.

After all, some good trades and good luck can fund your next much-needed vacation or even early retirement. And it’s especially important to stay on top of the market when we’re on course for record-high stock valuations. This is a MTF HUD built around Chartguy Dan’s trading style of 12/26 EMAs and RSI levels from multiple time frames. The HUD is configurable, allowing you to change the time frame of RSI levels and EMAs. The EMAs can be displayed at their current price or a percentage distance away.

  • Double RSI Trading System is suitable to apply on all Forex currency pairs and can be adjusted with all sorts of timeframe charts available at the mt4 trading terminal.
  • If RSI breaks out to the upside, we follow along by going long, and if it breaks down to the downside, we instead go short.
  • 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.
  • To practice all of the trading strategies detailed in this article, please visit our homepage at

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.

How to Trade with the RSI Trading Indicator

Most importantly, traders new to the RSI indicator should test strategies using paper trades, or trading simulators, on the trading platform. By combining technicals with an understanding of the movement of the broader market, traders improve their opportunities to hit a home run with their trades. This divergence has even more substantial evidence of either overbought or oversold conditions. Should this divergence persist for an extended time, it becomes more likely the market will turn back around. One important thing to remember in the rsi trading strategy, ranging market is different, and the trending market is different.

Try different settings to see which work for your trading strategy or trading system. A range breakout has been witnessed in the stock near Rs 4,880 and this breakout resembles an inverse Head and Shoulder, Rounding Bottom, or a Cup and Handle pattern. The price action has occurred exactly above the 200-day moving average. In addition, a bullish crossover of 20 and 100-day moving averages have also been noticed. Hence, traders are advised to ‘buy’ the stock near Rs 4,900 with a strict stop of Rs 4,750. We will buy or sell the stock when we match an RSI overbought or oversold signal with a supportive crossover of the moving averages.

rsi trading

This RSI trading strategy is as useful as the RSI 2 trading strategy, which was developed by Larry Connor. However, this strategy strictly trades reversals that occur in the last 50 candles. As you know, RSI measures whether an asset is overbought or oversold. It may sound a little complicated, but basically, MCAD is a way to generate buy and sell signals using two different statistical averages compared against each other.

RSI Trading Strategy | Best RSI Setting for Day Trading

For example, well-known market technician Constance Brown, CMT, proposed that an oversold reading by the RSI in an uptrend is probably much higher than 30. Likewise, an overbought reading during a downtrend is much lower than 70. The average gain or loss used in this calculation is the average percentage gain or loss during a look-back period. Periods with price losses are counted as zero in the calculations of average gain. Periods with price increases are counted as zero in the calculations of average loss. The RSI line crossing below the overbought line or above oversold line is often seen by traders as a signal to buy or sell.

rsi trading

Multi-time frame analysis is essential for getting additional confirmations and understanding the overall market structure. They use the Relative Strength Index alongside the support/resistance lines, key levels, supply/demand zones, Fibs, and trend lines. 9 and 21-period moving averages are frequently used with the RSI to trade reversals or momentum positions. A bearish divergence coupled with a crossover of the 9 and 21 MAs can be a suitable option here.

Free Forex Systems (MT , Trend Following Systems

After a few years of trading commodities, Wilder focused his efforts on the study of technical analysis. In 1978 he published New Concepts in Technical Trading Systems. This work featured the debut of his new momentum oscillator, the Relative Strength Index, better known as RSI. Finally, you can enter the market when RSI shows you a significant pullback against a trend.

Moving Averages

True reversal signals are rare and can be difficult to separate from false alarms. A false positive, for example, would be a bullish crossover followed by a sudden decline in a stock. A false negative would be a situation where there is a bearish crossover, yet the stock suddenly accelerated upward. An RSI divergence occurs when price moves in the opposite direction of the RSI. In other words, a chart might display a change in momentum before a corresponding change in price. From March to June, the price movements were less extreme in volume and momentum, consequently, RSI stayed more neutral.

Forex Trading Indicator Settings

Usually, that’s 70 for the overbought threshold, and 30 for the oversold threshold. In the image below you can see what it looks like when the RSI crosses the overbought and oversold thresholds. The information contained on this website is solely for educational purposes, and does not constitute investment advice.

In essence this a trading method to buy the dip and sell the rip. 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.

In this post, I’ll give you 3 complete RSI trading strategies. Most blog posts and YouTube videos give you one or two well-chosen examples and expect you to believe that a certain RSI trading strategy will work for everyone. There are a lot of RSI trading strategies available on the internet.