Trading with Relative Strength Index (RSI)

RSI was introduced for the first time by J. Welles Wilder in 1978 in his book ‘New Concepts in Technical Trading Systems’. Value from Rsi is within 0-100. Therefore, some trader categorized it as oscillator because oscillator principle is moving upwards and downwards. RSI itself is an indicator that compares price momentum (the value at this point against power to lose.
Trading with Relative Strength Index (RSI)
How to use RSI - Trading with two RSI
The RSI14 and RSI3 help you to identify the market situation whether it is OVERBOUGHT or OVERSOLD. But you must be careful to make both RSI as guidance because both RSI indicators must be in the same situation to enable you to determine the market situation is under OVERBOUGHT or OVERSOLD.
How would you know the market is OVERBOUGHT or OVERSOLD? Look at the graph
below:
Trading with Relative Strength Index (RSI)
OPEN SELL POSITION - Make sure RSI14 touches or goes above line 70 (the best
point is 70 – 75) and RSI3 goes above line 80 (the best point
is 90 – 95)
- RSI14 and RSI3 position must be parallel with each other at maximum stage as mentioned above.
- Please refer to graph above as guidance and reference.
- If one of the RSI reach overbought, you need to wait the next RSI to go near overbought. It means that both RSI must go together and parallel.
- In order to maximize profit after you open SELL position you can wait until one of the RSI whether RSI3 or RSI14 to touch its destination first. I would strongly recommend that you take profit when RSI3 nearing oversold because RSI3 time factor is faster compared to RSI14.
OPEN BUY POSITION - Make sure RSI14 touch or go beyond line 30 or below (the
best is point 30 – 25) and RSI3 must get passed line 20 and below (the best is point 10-5).
- RSI14 and RSI3 must be parallel with each other at the minimum level as mentioned above.
- Please look at the graph above as guidance and reference.
- If one of the RSI is nearing oversold, you must wait until the next RSI nearing oversold. It means that both RSI must go together and parallel.
- In order to maximize profit after you opened LONG position you need to wait until one of he RSI whether RSI3 or RSI14 to touch its destination first. I strongly recommend that you take profit when RSI3 nearing overbought because RSI3 time factor is much faster than RSI14. Through this technique, you can apply to all TIMEFRAME that you want but the most ideal timeframes are H1, H4, D1, W1 and MN.
Trading with Relative Strength Index (RSI)
Precautions
In order to avoid making mistakes during entering position here I’d like to give a few guidance and techniques regarding RSI14 and RSI3 that you need to follow:
• Make sure you enter LONG position or SHORT position when both RSI is nearing their destinations in parallel as mentioned above.
• If you enter LONG position, follow these guidance: RSI14 - Make sure RSI14 touches or passes line 30 and below. The best is at point 25-30 AND RSI3 - Make sure RSI3 touches or passes line 20 and below. The best point is at 5-10
• If you enter SHORT position, follow these guidance:
RSI14 - Make sure RSI14 touches or passes line 70 and above. The best is at point 70-75 AND RSI3 - Make sure RSI3 touches or passes line 80 and above. The best is at point 90-95.
• Avoid from entering LONG position or SHORT position when both RSI doesn’t touch their destinations and not parallel as showed in the graph above because there might be a sudden change in trend.
• Make sure you refer to all TIMEFRAME in order to avoid mistakes when entering trend. Begin from larger TIMEFRAME to smaller. For example MN, W1, D1, H4, H1, M30, M15, M5 and M1.
• The best TIMEFRAME can be used as references are MN, W1, H4 and H1.
• Make sure to gain profit when one of RSI is nearing destination. Here I would strongly recommend that you take profit when RSI3 is nearing overbought or oversold because the faster time factor compared to RSI14.
• In order to avoid FALSE SIGNAL in the middle of the trend as shown in the graph above where there’s a sudden change of trend in the middle of both RSI, I would strongly recommend that you wait until both RSI nearing both destinations as explained above.
• Lastly, always trust in the position decision that you have entered by remaining calm and relaxed. Follow and trust in the indicator that you are using.

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