What is a RSI in Trading?
Relative strength index is a momentum oscillator which is used for identification of trend reversal of a particular stocks in both intraday and swing or positional trading. RSI can analyze the strengthens of particular stock's trend and you can get early signals of reversal in that particular stock. In the normal case we use 14 period for RSI. Many can use lower period of RSI for scalping trading and also make changes with your own strategies.
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| RSI divergence For Trend reversal for Intraday/Swing Trading |
RSI For Overbought and Over sell Confirmation
RSI ranges from 0 to 100, where RSI is in 80 to 100 can be considered as over bought zone and there will some fall from that levels. Also when RSI value becomes below 20 and it indicates that a stock is Over sold and there can be some bullish from that levels. Also The Overbought and oversold levels vary for different traders as per their strategies.
For All stocks, in the case of intraday or positional trades, RSI value 40 will act as support and there will be bullish trend from there till RSI 60 as next resistance. Also if cross above 60 then it will act as support And there will be again chance of bullishness in a particular stocks. You can use any time frame as per your strategies and your type of trading ie, intraday or positional trades.
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RSI Divergence Used as trend reversal for a stock
RSI divergence is used by most of the traders for both intraday and swing trading to identify the trend reversal of a particular stocks in trading. If a RSI shows higher high and stock price indicates lower high and lows then it will be positive divergence. Also if RSI shows lower highs and price makes Higher lows and it indicates the negative RSI divergence. RSI will works only in trending market, in sideways market you will not get this setup
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Trade using RSI in Intraday and swing Trades
- Buy above RSI(14) value at 60
- Sell Below RSI(14) value below 40
- RSI(14) value below 20 is over Sold zone.
- RSI(14) value above 80 is over bought zone.
- RSI didn't works alone it should be combined with other indicators to generate profit in the trading.
Conclusion
RSI is one of the unavoidable indicators we should use in Intraday Trading to choose stocks. Also do not depend only on RSI, if you do that It wont works for you. RSI divergence can be used for the trend reversal and can make decisions on entry and exit points. RSI indicators can be used to find the Overbought and over sold stocks easily. Also RSI can be used for identification of Trend of a particular stock when trading.