Relative Strength Index Stock Indices Technical Analysis and RSI Stock Indices Signals

Developed by J. Welles Wilder, explained in the book "New Concepts in Technical Trading Systems".

RSI is the most popular indicator & it is a momentum oscillator and a stock indices trend following indicator. RSI compares a trading stock index price magnitude of the recent stock index price gains against its magnitude of recent losses stock index price losses & draws this data on a scale of values that ranges between 0-100.

RSI measures the momentum of a stock indices instrument: values above 50 signify bullish momentum while values below 50 center-line signify bearish momentum.

Relative Strength Index Technical Stock Indices Indicator - RSI Technical Stock Index Indicator Analysis

RSI is drawn as a green-line
Horizontal dashed lines are drawn to identifying over bought and oversold levels are i.e. 70/30 levels respectively.

Indices Technical Analysis & How to Generate Trading Signals

There are several methods used to trade, these are:

50-level Crossover Signals

Buy signal - when the indicator crosses above 50 a buy/bullish signal is given.
Sell Stock Indices Signal - when the indicator crosses below 50 a sell/bearish signal is given.

RSI Technical Index Indicator Buy Sell Indices Signals - RSI Technical Index Indicator Analysis - RSI Index Indicators

RSI Stock Index Chart Patterns

Traders can draw stock indices trend lines & map out stock indices chart patterns on the RSI indicator. The RSI often forms stock indices patterns such as head and shoulders chart pattern which might not have formed clearly on the stock index price chart.

Indices Support/Resistance Break outs

RSI is a leading indicator & can be used to predict Support/Resistance Breakouts before stock index price breaks its support/resistance level. RSI uses the swing failure signal to predict when price is about to break support and resistance areas.

Support and Resistance Breakout - RSI Technical Indices Indicator Analysis - RSI - RSI Indices Indicators

Swing Failure - Support & Resistance Break out

Overbought/Oversold Conditions on Indicator

Overbought- levels above 80
Oversold- levels below 20

These levels can be used to generate stock index trading signals such as when RSI turns up from below 20 after oversold, buy and sell when RSI crosses to below 80 after overbought, sell. These signals are not suitable for Stock Indices Trading because they are prone to a lot of fakeouts.

Divergence Indices Setups

Divergence trading is one of the technical analysis method used to trade reversals of the stock index price trends. There are four types of divergences that can be traded with this indicator covered in the divergence tutorial on this website.