RSI Indices Technical Analysis and RSI Indices Trading 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 indices trend following indicator. RSI compares a indices price magnitude of the recent stock indices price gains against its magnitude of recent losses stock indices price losses and plots this data on a scale of values that ranges between 0-100.

Relative Strength Index measures the momentum of indices; 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.

Indices Technical Analysis and Generating Indices Trading 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 Indices Trading Signal - when the indicator crosses below 50 a sell/bearish signal is given.

RSI Indices Chart Patterns

Traders can draw indices trend lines and map out stock indices chart patterns on the RSI indicator. The Relative Strength Index often forms stock indices chart patterns such as head and shoulders stock indices chart pattern which might not have formed clearly on the stock indices price chart.

Trading Support/Resistance Breakouts

RSI is a leading indicator and can be used to predict Support/Resistance Breakouts before stock indices price breaks its support/resistance level. RSI uses the swing failure signal to predict when stock indices price is about to break support and resistance levels.

Swing Failure - Support and Resistance Breakout

Overbought/Oversold Conditions

• Overbought- levels above 80
• Oversold- levels below 20

These levels can be used to generate indices 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 trading Indices because they are prone to a lot of whipsaws.

Divergence Indices Trading Setups

Divergence trading is one of the technical analysis method used to trade reversals of the stock indices price trends. There are four types of divergences that can be traded with this indicator covered in the divergence tutorial on this website.