With over 50+ years of combined trading experience, Trading Strategy Guides offers trading guides and resources to educate traders in all walks of life and motivations. We specialize in teaching Dutch tax system & Taxes in the Netherlands traders of all skill levels how to trade stocks, options, forex, cryptocurrencies, commodities, and more. We provide content for over 100,000+ active followers and over 2,500+ members.

You can use any time frame from daily charts to 3 minute intra-day charts. The RSI2 trading indicator is a change from the standard 14 period RSI to a 2 period that was brought to us by Larry Connors. Actually, here we are not concerned with the actual RSI reading, but more where RSI is in relation to its previous closes.

Double RSI Trading System has got the top rank among best Forex trading strategies in the financial market. This system comes up with an idea to combine the best Forex trend indicator RSI with dual parameters. A Fisher histogram oscillator has also been added with the system to make it more productive with steady level of success.

You can enter the trade after the expansion of the Bollinger band. The signal of whether the market is picking movement is, our indicator Bollinger band will expand, or it will show some expansion moment. We must never buy or sell based on the illusion that the stock is available at a low price.

Furthermore, this happens in the overbought area of the RSI. This is a very strong exit signal, and we immediately close our long trade. In this trading strategy, we will match the RSI with the moving average cross indicator. For the moving averages, we will use the 4-period and 13-period MAs. Five hours later, we see the RSI entering oversold territory just for a moment.

What is the best RSI setting for day trading?

RSI is typically charted on a graph and oscillates between 0 and 100. The changes in the indicator are brought on by movement in the last close price of a security compared against previous periods. The relative strength index is a momentum indicator used in technical analysis. It measures the speed and magnitude of a coin’s recent price changes to evaluate overvalued or undervalued conditions in the price of that coin. The RSI is displayed as an oscillator on a scale of zero to 100. Because it is intended for entry point within a trend, Connors uses a much more sensitive lower timeframe – 2 periods on the RSI.

Essentially RSI, when graphed, provides a visual mean to monitor both the current, as well as historical, strength and weakness of a particular market. The strength or weakness is based on closing prices over the duration of a specified trading period creating a reliable metric of price and momentum changes. Given the popularity of cash settled instruments and leveraged financial products ; RSI has proven to be a viable indicator of price movements.

Vanilla RSI Explained

In essence, the indicator starts moving in the opposite direction to the price. A downtrend is obvious as price breaks lows, the average is sloping with price below. RSI2 pulls up past level 90 and price pulls into a former support turned potential resistance zone. Your stop loss can be virtually anything that suits your trading personality.

The combination of these two forces produces sharp rallies in a very short time frame. Consequently, the second low not only forms a double bottom on the price chart but the relative strength index as well. As you can see below, the RSI can also define downtrends.

The RSI indicator works alongside other indicators and technical signals to detect when the market is poised for a reversion back to its mean. Pro, alongside the RSI, further identifies trend reversals and reversions back to the mean. Pro is designed to identify reversals, give traders an early warning as a turning point approaches, and provide a three-step process for timing trades. However, this refined indicator eliminates much of the “noise” that plagues other oscillators. It’s a versatile tool that helps traders pick entries and exits during trend retracements.

RSI Trading Strategy’s Two Key Values

This is an oldie but goodie, and is still applicable to the RSI indicator. In this example, the RSI had a breakdown and backtest of the trendline before the fall in price. While the stock continued to make higher highs, the RSI was starting to slump. Within, you can change the period from the standard 14 to whatever you prefer. You can also change the “overbought” and “oversold” parameters as you wish. As traders, our job is to look for an edge in the market.

• Well, in our experience, the 14-period RSI tends to perform quite poorly.
• It just that as an additional, these system need to be equipment with any other supporting trend indicator in order to identify the market is trending or ranging..
• Conversely, if you want to trade other, more trending markets like energies, you might be better of choosing a trend-following/momentum approach.
• But it might not have the volatility to bounce to the other extremity.
• It is very important to wait for this second low because it gets you in a better trade making position.
• This is especially true when confronted with increased distrust in the market and high inflation.

First, remember this should incorporate the daily charts to find the best opportunities. Our Strategy should be used with multiple time frames to dial in your entries and make them more accurate. You will find the price breaking critical levels for the best possible entries. A stochastic oscillator is used by technical analysts to gauge momentum based on an asset’s price history.

Who invented the RSI indicator?

Interesting, adding this to my arsenal would definitely help my trades. If you are struggling with this step, save the picture for reference. The RSI forms another dip without crossing back into oversold territory. Traders can use RSI to predict the price behavior of a security.

Oversold and overbought signals do not automatically present a change in price direction. In the chart of gold that was shown, on the left side of the chart you https://1investing.in/ can see the RSI2 indicator is oversold and the market continues to decline. Then we sell the position if the close crosses above the 5-day moving average.

RSI and Bollinger Bands

It’s too slow to react to price action in any useful way, and leaves us with too little room to profit in the markets. Every type of trading strategy will have its winners and losers. In that regard, seeing some trades just turn red with the falling market is completely normal. The RSI indicator is one of the most popular and well-known trading indicators out there. It’s used by many to analyze the markets in search of profitable entries and exits.

This first trading strategy is one that’s quite similar to the conventional view of how the RSI should work. As you probably remember, we previously stated that the best settings for RSI usually is somewhere around 2-7. As such, that is the setting we will go with here as well.