RSI Stocks Technical Analysis and RSI Stock Signals
Developed by J. Welles Wilder, described in the book "New Concepts in Technical Trading Systems".
Relative Strength Index is the most popular indicator and it is a momentum oscillator and a stocks trend following indicator. RSI compares a trading stocks price magnitude of the recent stocks price gains against its magnitude of recent losses stocks price losses and plots this data on a scale of values that ranges between 0-100.
Relative Strength Index measures the momentum of a stocks instrument; values above 50 signify bullish momentum while values below 50 center-line signify bearish momentum.
- RSI is drawn as a green line
- Horizontal dashed lines are drawn to identifying overbought and oversold levels are i.e. 70/30 levels respectively.
Stock Technical Analysis and Generating Stocks 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 Stocks Signal - when the indicator crosses below 50 a sell/bearish signal is given.
RSI Stock Chart Patterns
Traders can draw stocks trend lines and map out stocks chart patterns on the RSI indicator. The Relative Strength Index often forms stocks chart patterns such as head and shoulders chart pattern which might not have formed clearly on the stocks price chart.
Stock Trading Support/Resistance Breakouts
RSI is a leading indicator and can be used to predict Support/Resistance Breakouts before stocks price breaks its support/resistance level. RSI uses the swing failure signal to predict when price is about to break resistance and support zones.
Swing Failure - Support and Resistance Breakout
Overbought/Oversold Conditions on Stocks Trading Indicator
- Overbought- levels above 80
- Oversold- levels below 20
These levels can be used to generate stock 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 Stocks Trading because they are prone to a lot of whipsaws.
Divergence Stock Setups
Divergence trading is one of the technical analysis method used to trade reversals of the stocks price trends. There are four types of divergences that can be traded with this indicator covered in the divergence tutorial on this website.
