How to Use RSI Indicator

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 Fibonacci Trading Strategy. Below, we will discuss the most important things you need to know about trading with the Relative Strength Index (RSI) indicator. In other words, the market price makes a lower low, while the RSI makes a higher low.

What time frame should I use with RSI indicator?

So what period of RSI should intraday traders should choose? Although the default setting is 14, the intraday traders usually prefer a range of 8-11 periods. Now this range is reduced to increase the sensitivity and also to monitor the market closely so that you can efficiently trade within minutes.

The reason we share the calculation is not that you will need to manually calculate it. Please leave a comment below if you have any questions about RSI Trading Strategy.We also recommend taking some time to learn about our mean reversion trading strategy. That way if the trend continued and did not break, it could hit this level and bounce back up in our direction.I recommend you follow at least a 1 to 3 profit vs. risk level. This will ensure that you are maximizing your potential to get the most out of the strategy. 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.

Is There a Better Indicator Than the RSI?

In fact, most traders accept that the signals given by the RSI in strong upward or downward trends often can be false. The below chart shows a picturesque bull market in the Nasdaq index, Connors’ RSI trading strategy only has one false signal and six strong signals. The RSI setting will affect how frequently the RSI gives overbought and oversold signals as well as divergence signals to buy and sell. RSI level of above 50 indicates more buying momentum and shows stronger buying power in the market.

How to Use RSI Indicator

These numbers are used to indicate the likelihood of a change in the price movement. This is basically the percentage of swing highs/lows that need to fall within our hidden area (as defined by RSI Sensitivity) above. So this means 4 out of 5 most recent swing highs/lows is the minimum requirement. We don’t want too many as it can get quite messy – I usually stick to 5 as the sweet spot. That means we’ll look for the past 5 major swing highs and past 5 major swing lows. Shows the hidden RSI area range where the hidden RSI swing low support is.

RSI indicator explained

We have developed the Rule Trading Strategy that uses the RSI indicator. It involves price action analysis, which will help you land great trade entries! This RSI trading strategy is as useful as the RSI 2 trading strategy, which was developed by Larry Connor [1].

  • The default among many platforms is that the RSI uses the closing prices.
  • In this article, you will find a simple, user-friendly guide to the RSI indicator, from how to build it to how to interpret and use it in a trading strategy.
  • Additionally, backtesting and analyzing past trading results can help traders identify areas for improvement in their RSI trading strategy.
  • Welles Wilder in 1978, it has gained a lot of popularity for its effectiveness in showing if a market is overbought or oversold.
  • High RSI levels, above 70, generate sell signals and suggest that a security is overbought or overvalued.
  • It’s something that, I’ve never seen anyone talk about before.