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.
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:
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.
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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