RSI Oil Trading Strategies

• RSI Overbought and Oversold Levels
• Relative Strength Index Divergence Setups
• RSI Classic Bullish & Bearish Divergence
• RSI Hidden Bullish & Bearish Divergence
• Swing Failure Strategy
• RSI Crude Oil Trading Chart Patterns Oil Trading Trend Lines
• RSI Summary

Relative Strength Index Indicator Strategy

Relative Strength Index or RSI is one of the most popular oil indicator used in oil trading. It is an oscillator oil indicator which oscillates between 0 -100. This a oil trend following oil indicator. It indicates the strength of the oil trend, values above 50 indicate a bullish oil trend while values below 50 indicate bearish Oil Trading trend.

RSI Oil Trading Indicator Measures Momentum of a Oil Trading Trend.

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

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

RSI Crude Oil Indicator - How to Trade Oil Trading with RSI Technical Indicator

In the crude oil trading example above, when the oil indicator is below 50, the crude oil price kept moving in a downward crude oil trend. The crude oil 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 oil trend had ended.

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

From the crude oil trading example above, when the oil 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 crude oil price oil trend was generally upwards. As long as RSI indicator does not move to below 50 the current oil trend remains intact. This is the reason the 50 center line mark is used to demarcate the signal between bullish and bearish oil 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 Oil traders are the 9 & 25 day moving average.

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

To Calculate RSI Oil Indicator:

• The number of days that a oil market is up is compared to the number of days that the crude oil market is down in a given time period.
• The numerator in the basic formula is an average of all the oil trading sessions that finished with an upward crude oil price change.
• The denominator is an average of all the down oil trading market 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 crude oil price in a single oil trading session crude oil price period may skew the calculation of the RSI average and produce a false oil signal - whipsaw signal - in the form of a spike.

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

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