Trade Forex Trading

RSI Indices Strategies

RSI Indicator Stock Indices Strategy

RSI or RSI is one of the most popular stock indices indicator used in stock index trading. It is an oscillator stock indices indicator which oscillates between 0 -100. This a stock indices trend following stock indices indicator. It indicates the strength of the stock indices trend, values above 50 indicate a bullish stock indices trend while values below 50 indicate bearish Indices trend.

RSI Stock Indices Indicator Measures Momentum of a Stock Indices Trend.

The center-line for the RSI is 50 stock indices indicator, cross-over of the center-line indicate shifts from bullish to bearish stock indices trend & vice versa.

Above 50, the buyers have greater momentum than the sellers and stock index price on the stock index chart will keep going up as long as this RSI indicator stays above 50.

Below 50, the sellers have greater momentum than the buyers and stock index price on the stock index chart will keep going downwards as long as RSI indicator stays below 50.

RSI Index Strategy: 50 Center Line Crossover Index Trading Method

RSI Stock Index Indicator - How to Trade Stock Indices with RSI Technical Indicator

In the stock indices example above, when the stock indices indicator is below 50, the stock index price kept moving in a downward trend. The stock index price continues to move down as long as RSI indicator was below 50. When the RSI indicator moved above 50 it showed that the momentum had changed from sell to buy and that the downward stock indices trend had ended.

When the RSI indicator moved to above 50 the stock index price started to move upwards and the stock indices trend changed from bearish to bullish. The stock indices chart price continued to move upwards and the RSI indicator remained above 50 afterwards.

From the stock indices example above, when the stock indices trend was bullish sometimes the RSI would turn downwards but it would not go below 50, this shows that these temporary moves are just retracements because during all these time the stock index price trend was generally upwards. As long as RSI indicator does not move to below 50 the current stock indices trend remains intact. This is the reason the 50 center line mark is used to demarcate the signal between bullish and bearish trading signals.

The RSI technical indicator uses 14 day period as default period, this is the period recommended by J Welles Wilders when he introduced it. Other oftenly used periods used by Stock Indices traders are the 9 & 25 day moving average.

The RSI technical indicator period used depends on the stock index chart time frame you are using to trade, if you are using day stock indices chart time frame the 14 period will represent 14 days, while if you use 1 hour stock indices chart time frame the 14 period will represent 14 hours. For our stock indices example we shall use 14 day moving average, but for your trading you can substitute the day period with the chart time frame you are stock indices with.

To Calculate RSI Stock Indices Indicator:

  • The number of days that a stock indices market is up is compared to the number of days that the stock indices market is down in a given time period.
  • The numerator in the basic formula is an average of all the stock indices sessions that finished with an upward stock index price change.
  • The denominator is an average of all the down stock indices sessions closes for that period.
  • The average for the down days are calculated as absolute numbers.
  • The Initial RSI is then turned into an oscillator.

Sometimes very large up or down movement in stock index price in a single stock indices session stock index price period may skew the calculation of the RSI average and produce a false stock indices signal - whipsaw signal - in the form of a spike.

RSI Center line: The center-line for this stock indices indicator is 50. A value above 50 implies that the stock indices market stock indices trend is in a bullish phase as average gains are greater than average losses. Values below 50 indicate a bearish phase in the stock indices market stock index prices are generally closing lower than where they opened.

Overbought and Oversold Levels: Wilder set the RSI overbought and oversold levels at which the stock indices market moves are overextended at 70 and 30.

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