In this next section we’ll explore the various trade setups using the indicator. The RSI provides several signals to traders. To that point, we’ll discuss different RSI trading strategies that may require you to modify these settings. You can also change the “overbought” and “oversold” parameters as you wish. Within, you can change the period from the standard 14 to whatever you prefer.

The default parameters are usually set for a 14 period and 80/20 upper and lower threshold. In the screenshot above, you can see inside the TradingSim RSI settings. The result is a plot on subchart that indicates the oversold and overbought conditions, like the one below this chart in this example:

After all, most charting platforms have an RSI indicator that does all the math for you. We certainly don’t recommend doing these calculations while you’re trading. Loss over last 13 bars) + 0 (Current Loss)) You would calculate the relative strength index formula as follows:ġ.25 (Avg. The default setting for the RSI is 14 days. The RSI was developed by J.Welles Wilder and detailed in his book New Concepts in Technical Trading Systems in June of 1978. With practice, and in combination with a firm understanding of volume and price action, the RSI indicator can simply be a helpful tool in your trading arsenal. Using the indicator can also help predict trends, trend reversals, trend continuations, or stagnate corrections. When used properly, it can help predict rising momentum, underlying demand or supply, and shifts in sentiment. Indicators can certainly help with this if used correctly. Why the RSI?Īs traders, our job is to look for an edge in the market. Generally speaking, it helps to measure periods of overbought or oversold conditions. This number is computed and has a range between 0 and 100.Ī reading above 70 is considered bullish, while a reading below 30 is an indication of bearishness. The Relative Strength Index (RSI) is a basic measure of how well a stock is performing against itself by comparing the strength of the up days versus the down days.

#2 – Divergences Do Not Always Lead to Meltdowns.Examples of where the Relative Strength Indicator Fails.Trading Strategies Using the Relative Strength Index Indicator.

J welles wilder pdf