The RSI revisited

[chartist2004]

I read a thread on the use of RSI that was closed.
The RSI is a versatile indicator very close to price therefore less prone to lag.

Traders interested in discussing the use of this tool should participate in the discussion. There is no danger of anybody stealing ideas. The Turtle trading rules are now common knowledge but how many of us have actually used them ?

So here is a start:

--> When the RSI moves into what is considered 'overbought' zone i.e. above 70 chances are that a new uptrend may just be beginning. A dip in the RSI should be used to go long.

--> When the RSI moves into what is considered 'oversold' zone i.e. below 30 chances are that a new downtrend may just be beginning. A rally in the RSI should be used to go short.

I never short when the RSI moves into 'overbought' do not buy when the RSI moves into 'oversold'.

These two simple rules ensure that I do not st in front of a running train / trend.

[sikandar]

so while using rsi what are ur entry exit points . well i use rsi as i short when it touches 70 long when it touches 30 but only when the trend reverses .
so when do u enter exit

[4X4X]

Hello let me add some RSI stuff.

Trading With RSI

What is RSI?

RSI is an oscillator that works well in range-bound markets. It is very similar to stochastics.

What it does:
Like all oscillators RSI offer indications of when a currency p is overbought/oversold. RSI essentially calculates the strength of all upward cles (green) against the strength of all downward cles (red) over the course of the specified time frame.

Parameters:
When pulling up RSI on a chart the charting application will prompt you to select how many periods you would like to include in your study. The most common number used is 14.


How to Use RSI in Currency Trading?

· Can be used to determine overbought/oversold levels like stochastics
· Used to spot divergences which indicate potential weaknesses in trends

Overbought/Oversold:
If RSI is above 70 the p is considered to be overbought a sell signal is issued. If the p is below 30 it is considered to be oversold a buy signal is issued. Like all oscillators RSI works best when the market is range-bound – in other words when the market is expected to simply gravitate between an upper lower level. In trending or momentum-driven markets using the overbought/oversold levels offered by RSI is generally of limited value.

Divergence:
RSI can also be used to signal when a trend is weakening. If a currency p makes new highs in its price but RSI does not – meaning there is divergence between the price movement RSI – it may signal that the trend is not strong that a reversal may be imminent. If clestick patterns confirm a trader can use this as an opportunity to enter a position.

If a market is trending RSI is over 70 it can stay there for a prolonged period of time before the market makes any correction. In this way an RSI over 70 acts almost as an early warning sign of a correction but it does not provide an exact time frame when the correction should occur. If you look at a daily chart for EURUSD for the second half of 2003 you can see that RSI was over 70 for weeks in a row while the chart continued to make new highs.

The Basics of Technical Analysis


By the way what are Turtle trading secrets?

[chartist2004]

First the turtle trading secrets:

This is a channel breakout system. Buy when the high crosses above the highest high of the previous 55 bars. Use an average true range based stop as a trailing stop loss. Then keep on adding to your initial position if the move goes in your favor. A second buy signal comes when the high crosses above the high of the previous 20 bars provided the previous trade was a loss.

Sell rules are reversed.

The RSI

Open up a chart which shows a sustained trend. Let us assume it is an uptrend. You will see that the RSI goes to 70 quickly then remains in that area for many bars. Here the first move above 70 is an indication that a strong up move is starting. The strategy should be to avoid short selling buy every time we have a dip.

More thoughts are welcome.

[Jetheat]

Chartist The strategy you use was first published by Jake Bernstein using Stochastics is called Stochastic Pop.

You simply buy when the indicator goes above the overbought line vice versa for sell. The theory is you still have enough to go on.

[chartist2004]

Jetheat

The stochastics pop may be similiar. The RSI technique I explained were formulated by rew cardwell who has spent many years analyzing fine tuning the RSI .

Two recent books discuss some of his ideas:
C Brown: T.A. for the trading professional
John Hayden: RSI: The complete guide.

It has been my experience that the big money is made in trending markets so buying when the RSI first reaches extreme z (65 or 70 or whatever) makes sense. This does challenge conventional wisdom of 'overbought' 'oversold' RSI.

I am looking for more ideas on using the RSI.

[sbenard]

Has anyone used an RSI that has been customized/altered so as to improve it?

I use one that is proprietary that has fewer whipsaws more reliable divergences. Unfortunately since it is proprietary I have no idea what the formula is or precisely how it works. I have a fish but can't go fishing in other words.

I would love to get the formula for a smoothed RSI that I could take with me program into another charting software.

Could an MA be applied to RSI to get this smoothing afffect? Or would that introduce that beast--LAG--into the indicator?

[chartist2004]

sbenard

I think smoother RSI formulas are available in the public domain. If you wish I can post one in easylanguage (used by tradestation).

I still use the original RSI as dveloped by welles wilders.

I suspect that smoothing changes the characteristics of the original indicator.

Okay here is a question. When the RSI reaches 70 it is often a sign that a sustained up move is building up. The RSI can then remain in this zone for many bars. SOmetiems however the idnicator will actually reverse 70 prices will also fall.

So how to distinguish between a trending move a reversal?