As RSI is a very common indicator. So what New will we learn from this Post?
- Introduction
- Working of the indicator
- Uncommon Strategies using RSI
RSI was developed by J.Welles.Wilder in 1978.
It is an Oscillator that shows the momentum of the market.Formula RSI=100 - 100/1-RS
RS = Average of days of the Coin being Positive / Average of days of the Coin being Negative.
E.g.: If we take an example of BTC/USD and the average of days the Coin is being up is greater than the average of days the Coin is negative, then RSI would be greater.
Let’s put this in a more simple language:
- RSI Goes Up When the average gains are greater than average losses i.e. Size of bullish candles are larger than bearish ones.
- RSI goes Down When the average gains are smaller than average losses i.e. Size of bearish candles are larger than bullish ones.
So how can you trade with it?
Using RSI with Support and Resistance:
- Here we are looking at BTC on 2hr Time frame and we can see Rsi is also bouncing back from the Coins supports (2nd image) and Resistance (1st image)
Here, we have to look for the opportunities where the RSI and the stock’s support and resistance are in tangent, i.e. RSI is close to overbought and Oversold Zone.
RSI (50) Rule:
In this Strategy, we have to tweak the settings of RSI first, which would be changing the period to 50 and making overbought and oversold zones to 50 both.
In this strategy, we will trade with the trend i.e. we’ll buy when the RSI line is above 50 and we’ll Short when the RSI line is below 50.
Above 50 indicating an Uptrend and below 50 indicating a downtrend as we can see in the image above as the stock is above 50 and is making higher highs when above 50 and lower lows when below 50.
RSI with Moving Average:
To apply this indicator search RSI+EMA from olegnator. Change the RSI Period to 50 and EMA to 50.
Now trading only with RSI will cause many false signals so it is necessary to confirm with multiple tools before the trade.
Now in this strategy, we have used a 50 moving average on top of RSI and Crossovers being the signal to buy and sell.
We have taken a large Moving average period like 50 to filter out false signals of shorter Moving averages.
Now if the Moving Average line Crosses RSI from below it is a buy signal and if the M.A line crosses RSI from above it is a sell signal.
Good luck, Trading!
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