Can The Relative Strength Index (RSI) Improve Your Trading?

Today's video is on the Relative Strength Index (RSI). This widely-used momentum oscillator measures the strength and speed of a market's price movement by comparing the current price of the security against its past performance. Developed by J. Welles Wilder in the 1970s, the RSI can be used to identify overbought and oversold areas, support and resistance levels, and potential entry and exit signals.

The RSI indicator is shown on a scale of 0 to 100, with levels marked at 70 and 30, and a midline at 50. Wilder recommended a calculation based on a 14 day period, but this can be adjusted to change the sensitivity of the indicator.

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12 thoughts on “Can The Relative Strength Index (RSI) Improve Your Trading?

  1. I use RSI set at 6 for daily and weekly time frames for investing, break outs typically peg it at extremes but otherwise useful in combination with MACD, 50/200 MA's, Elliott, volume and a dozen years of experience with market mechanics and fundamentals.

  2. Most, if not all, RSI equations use a 14 day period for the calculation. Why? What's the significance of 14?

    It was just decided a long time ago by Welles Wilder and everyone else who has followed him has never questioned it. In my study of the origin of technical indicators, I found that during the infant stages of computer analysis, someone decided that there was a 28 day cycle in the markets. It may have been the great Earl Hadaday. For all we know, it may have been tied to "the chicken incubation cycle". But it is a natural cycle so I will not question its existence.

    So they took the half cycle because of 14 days up, 14 days down. They then plugged it into the equation and have used it ever since. The same goes for the stochastic indicator. I've simplified this explanation, but most of it is true.

    It's time to abandon all these "smooth" indicators and oscillators and go back to real price (open, high, low, close, volume, open interest) analysis.

    The problem with using the RSI to trade is that it is just an indicator. it is not a trading tool. I've seen may traders use this indicator and get killed in the market. This is because they don't know the equation. The equation is BASED ON THE CLOSE, NOT THE HIGH OR THE LOW. So if you trade a signal based on the close, and you put a stop in based on a high or low, you are mixing apples and oranges. If you feel you have to use this indicator to trade then use a Stop Close Only trade if they are accepted.

    Just some quick thoughts.

  3. There are some other ranges to consider with RSI. In upward trending markets, retraces will generally back down the the 50-40 RSI range then rebound and continue the upward trend. Same for a down trending market, upward bounces will generally rise up to the 50-60 RSI range then decline and continue the downward trend.

    1. Everything is lagging......... the bar you just looked at is now history and therefore lagging.
      That's why we trade momentum and probabilities with good risk management.
      That is about as close to reading the future as we will ever get.... Oh and one more thing.
      My forecasting tool.....

      1. Perfect explanation. But let it go, we need the dumb money in the market to pick off. Cheers.

        1. No please, continue to use the RSI and other lagging indicators 🙂

  4. Great information

    i am testing this out on UA stock since it is treanding upward thanks for the information

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