RSI Stocks Strategies

• RSI Overbought and Oversold Levels
• Relative Strength Index Divergence Setups
• RSI Classic Bullish and Bearish Divergence
• RSI Hidden Bullish and Bearish Divergence
• Swing Failure Strategy
• RSI Stock Chart Patterns Stocks Trend Lines
• RSI Summary

Relative Strength Index Indicator Stocks Strategy

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

RSI Stocks Indicator Measures Momentum of a Stocks Trend.

The center-line for the RSI is 50 stocks indicator, crossover of the center-line indicate shifts from bullish to bearish stocks trend and vice versa.

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

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

RSI Stock Indicator - How to Trade Stocks Trading with RSI Stocks Indicator

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

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

From the stocks example above, when the stocks 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 stocks price trend was generally upwards. As long as RSI indicator does not move to below 50 the current stocks trend remains intact. This is the reason the 50 center line mark is used to demarcate the signal between bullish and bearish stocks signals.

The RSI stocks indicator uses 14 day period as the default period, this is the period recommended by J Welles Wilders when he introduced it. Other common periods used by Stocks traders are the 9 and 25 day moving average.

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

To Calculate RSI Stocks Indicator:

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

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

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