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RSI Stock Indices Trading Strategies

Relative Strength Index Indicator Stock Indices Trading Strategy

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

 

RSI Stock Indices Trading Indicator Measures Momentum of a Stock Indices Trend.

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

 

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

 

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

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

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

 

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

 

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

 

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

 

The RSI stock indices trading 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 Stock Indices traders are the 9 and 25 day moving average.

 

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

 

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

 

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

 

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

 

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