RSI! A Different Perspective!

This week end I had time for some leisurely and informative reading. Yesterday I had posted some stuff on MACD, today I am posting some thing on RSI. I found this a little fascinating, will see how it fares though when looking for trade set ups. Devised by Welles Wilder in 1977, the Relative Strength Index (RSI) is one of the best known technical indicators. The RSI is a momentum oscillator measuring the rate of price change. The RSI can help a trader identify when price is overextended in one direction or another; these levels are generally accepted as overbought or oversold. I myself have been using it for OB and OS levels and looking for price patterns in RSI, which I find give you a sort of a forewarning. Another good way is to look for Divergences (Regular & Hidden) in RSI. However, the RSI is much more than a simple overbought/oversold indicator. It can be used to anticipate trend change and identify high profit, low risk trade opportunities. Andrew Cardwell, president of Cardwell Financial Group Inc. has taught his RSI course to many individual traders across America and Europe. Following are the concepts he uses while using RSI in trading.

TREND ANALYSIS WITH MOVING AVERAGES

1. Close Price
2. RSI Value
3. Simple (S), Weighted (W), Exponential (E)
4. Suggested Values for Moving Averages to be applied to both the Price and the RSI:
1. Standard (Intermediate-Long Term) 9 & 45 (S/W/E)
2. Short Term 4/20 (S/E)
3. Short Term Overbought/Oversold SMA 3 (RSI 3)
5. Guide Lines for Moving Average Interpretation
1. RSI Positive (+)/ Close Positive (+)= Trend is Up
2. RSI Negative (-)/ Close Positive (+)=Trend is Sideways /UP
3. RSI Positive (+) / Close Negative (-)=Trend is Sideways/ Down
4. RSI Negative (-) / Close Negative (-)=Trend is Down

*Here RSI Positive and Close Positive mean that both the RSI and Price are trading above their respective moving averages and vice versa in case of negative close.

BASIC TREND ANALYSIS GUIDELINES USING RSI

Uptrends	Downtrends
1. 80 – 40 RSI Range	1. 60 – 20 RSI Range
2. Bearish Divergence	2. Bullish Divergence
3. Positive Reversals	3. Negative Reversals
4. Spike Bottoms (RSI & Price)	4. Spike Tops (RSI & Price)
5. Moving Averages Positive (Close, S9 > W45	5. Moving Averages Negative (Close, S9 <>

6. Moving Averages Positive (RSI, S9 > W45

6. Moving Averages Negative (RSI S9 <>

7. Intermediate Moving Averages Positive: EMA45 (RSI) > 50 Level Close > EMA45 (Close)

7. Intermediate Moving Averages Negative: EMA45 (RSI) > 50 Level Close > EMA45 (Close)

I hope the above piece is useful to readers, I just share what I feel can be of some interest to people the way it has been to me. Some basic reading about RSI can be done here.

A good trader has to have three things; a chronic inability to accept things at face value, to feel continuously unsettled, and to have humility...Michael Steinhardt