Interpretation of RSI values and trading strategies with RSI

TradingFunda

Administrator
Staff member
#1
1⃣ If RSI makes new highs and higher lows, it means that the stock is in a healthy uptrend. If the RSI makes new lows and lower highs, it means that the stock is in a downtrend.

2⃣ Look to buy when RSI falls below 20 and look to sell when RSI rises above 80.

3⃣ When RSI is in overbought condition and is falling but the price is rising, it is a selling opportunity. When RSI is in oversold condition and is rising but the price is falling, it is a buying opportunity.

4⃣ RSI value of 50 is considered by many traders as a support and resistance benchmark.

5⃣ When the RSI crosses the centerline (i.e., RSI value of 50) from below, it is an occurrence more important than the crossing of the values 80 and 20; the crossing implies that a change of trend has happened and you can consider going long.
Book profit when the price falls below EMA (8). Let the stop loss be the low of the previous candle.

6⃣ When the RSI crosses the centerline from above, that is, when RSI value falls below 50, it is an indication that average losses are exceeding average gains over the period indicating that one can go in for fresh shorting or selling to cover long, provided price is trading below EMA (5). Book profit when price candle closes above EMA (8). Let the stop loss be the high of the previous candle.

✅ However, any buy or sell decision may be taken only with the crossover support of
(i) 4-day SMA and 13-day SMA or

(ii) EMA( 8) and EMA (21) or

(iii) MACD (12. 26, 9) because RSI may remain in overbought condition for a long period while price continues to rise higher and higher and similarly RSI may be in oversold zone for a long period but price may continue to fall for a long period.

👎 Divergence:

✨ When the RSI makes a higher high and higher low in spite of the declining trend of actual price, a positive divergence is said to have occurred.

✨ Similarly, when the RSI falls and makes a lower high in spite of rising trend in price, a negative divergence is said to have occurred.

⭐ These divergences signal a potential reversal point as directional momentum does not confirm the price.
 
Top