Sunday, November 2, 2008

RSI! A Different Perspective!

This week end I had time for some leisurely and informative reading. Yesterday I had posted some stuff on MACD, today I am posting some thing on RSI. I found this a little fascinating, will see how it fares though when looking for trade set ups. Devised by Welles Wilder in 1977, the Relative Strength Index (RSI) is one of the best known technical indicators. The RSI is a momentum oscillator measuring the rate of price change. The RSI can help a trader identify when price is overextended in one direction or another; these levels are generally accepted as overbought or oversold. I myself have been using it for OB and OS levels and looking for price patterns in RSI, which I find give you a sort of a forewarning. Another good way is to look for Divergences (Regular & Hidden) in RSI. However, the RSI is much more than a simple overbought/oversold indicator. It can be used to anticipate trend change and identify high profit, low risk trade opportunities. Andrew Cardwell, president of Cardwell Financial Group Inc. has taught his RSI course to many individual traders across America and Europe. Following are the concepts he uses while using RSI in trading.

TREND ANALYSIS WITH MOVING AVERAGES

  1. Close Price
  2. RSI Value
  3. Simple (S), Weighted (W), Exponential (E)
  4. Suggested Values for Moving Averages to be applied to both the Price and the RSI:
    1. Standard (Intermediate-Long Term) 9 & 45 (S/W/E)
    2. Short Term 4/20 (S/E)
    3. Short Term Overbought/Oversold SMA 3 (RSI 3)
  5. Guide Lines for Moving Average Interpretation
    1. RSI Positive (+)/ Close Positive (+)= Trend is Up
    2. RSI Negative (-)/ Close Positive (+)=Trend is Sideways /UP
    3. RSI Positive (+) / Close Negative (-)=Trend is Sideways/ Down
    4. RSI Negative (-) / Close Negative (-)=Trend is Down

*Here RSI Positive and Close Positive mean that both the RSI and Price are trading above their respective moving averages and vice versa in case of negative close.


BASIC TREND ANALYSIS GUIDELINES USING RSI

Uptrends

Downtrends

1. 80 – 40 RSI Range

1. 60 – 20 RSI Range

2. Bearish Divergence

2. Bullish Divergence

3. Positive Reversals

3. Negative Reversals

4. Spike Bottoms (RSI & Price)

4. Spike Tops (RSI & Price)

5. Moving Averages Positive (Close, S9 > W45

5. Moving Averages Negative (Close, S9 <>

6. Moving Averages Positive (RSI, S9 > W45

6. Moving Averages Negative (RSI S9 <>

7. Intermediate Moving Averages Positive: EMA45 (RSI) > 50 Level Close > EMA45 (Close)

7. Intermediate Moving Averages Negative: EMA45 (RSI) > 50 Level Close > EMA45 (Close)


I hope the above piece is useful to readers, I just share what I feel can be of some interest to people the way it has been to me. Some basic reading about RSI can be done here.


A good trader has to have three things; a chronic inability to accept things at face value, to feel continuously unsettled, and to have humility...Michael Steinhardt

8 comments:

Saikat said...

Hi Manoj,

Thanks, me too try to understand RSI deeper since last few weeks....

Can you put up a chart explaining ur methods what u'hv mentioned here?

Thanks again

Saikat

Karthik1027 said...

Great work,

Reallt enriching to read. Could u pls upload something written like on RSI, MACD abt ADX also.

Thanks
Karthik

andrew cardwell said...

This is Andrew Cardwell and I am not sure where you found information on my work as it is copyrighted material. if anyone is truly interested in studying my work you should contact me directly
at cardwellrsi@gmail.com , why get it from imitators and not the one who developed it originally.

And yes it is much more than an overbought/oversold indicator. I have taught trdaer how to use it it identify trend, trend change and forecast future price targets.
Over 70% of my course students have been referals from previous students and I have students in 27
countries around the world tarding all different markets and in all time frames.

Tryin2Trade said...

Dear Andrew Hello,

Sorry If you are offended by the post on the RSI in the blog. First I will clarify how I got the information. The information was in a downloadable pdf,of one of your seminars available on inotv.com. I am a paid subscriber of that service. I was interested in the way you described the ways to look at the RSI. Anyway what ever information I have posted in the blog has been duly and truth fully credited to you.

I make no claims that this work is of someone else or mine....As regards to the copyright issues if this post is indeed detrimental to your business interests then I shall remove it with immediate effect. I have no intentions whatsoever, in fact never had any commercial interests with my blog. I am a novice trader who is tryin2learn the nuances of trading and this blog is nothing but a sort of record keeping of my analysis and educative material I have gathered in last two years and share with like minded people.

Once again I reiterate that if you want this post to be removed I shall do so.

By the way it was an honor to have you visit my blog.

Thanks and Regards,

Manoj

Shiree said...

I presume Mr. Cardwell wont mind his work duly crdited to him. The literature aquired through fair means from INOTV.com . As far as I know Manoj will not do anything to dicredit or harm anybodies reputation.
Goodluck
Shiree

andrew cardwell rsi said...

Hello Manoj--

Would love to speak with you and contribute to your blog from time to time.

Please call me direct on my cell at 770.256.4943.

Tryin2Trade said...

Andrew Hello,
Thanks...It will be really wonderful for me and my fellow readers if we could get some pearls of wisdome from your side.Infact do guide us novices and contribute whatever you deem fit and deserves our attention!
Thanks once again and regards!

sodhan said...

RSI shows muscle power as long as it stays above 50 in uptrends there is no need to exit.Weak stocks RSI hit at 60 even may produce top as counter reactions are short lived.Seems more useful indicator for judging exits MACD is more appropriate for entry.