As of 11/08/2024
Indus: 43,989 +259.65 +0.6%
Trans: 17,354 +143.48 +0.8%
Utils: 1,032 +20.02 +2.0%
Nasdaq: 19,287 +17.32 +0.1%
S&P 500: 5,996 +22.44 +0.4%
|
YTD
+16.7%
+9.2%
+17.0%
+28.5%
+25.7%
|
43,100 or 41,250 by 11/15/2024
16,800 or 15,700 by 11/15/2024
1,075 or 1,000 by 11/15/2024
19,000 or 17,600 by 11/15/2024
5,900 or 5,600 by 11/15/2024
|
|
As of 11/08/2024
Indus: 43,989 +259.65 +0.6%
Trans: 17,354 +143.48 +0.8%
Utils: 1,032 +20.02 +2.0%
Nasdaq: 19,287 +17.32 +0.1%
S&P 500: 5,996 +22.44 +0.4%
|
YTD
+16.7%
+9.2%
+17.0%
+28.5%
+25.7%
|
43,100 or 41,250 by 11/15/2024
16,800 or 15,700 by 11/15/2024
1,075 or 1,000 by 11/15/2024
19,000 or 17,600 by 11/15/2024
5,900 or 5,600 by 11/15/2024
|
|
Bulkowski's RSI Trading Setups
The following page is only a faction of the complete analysis of the RSI indicator. Check here to download a compressed Word document that includes
pictures and in-depth analysis.
RSI Trading Setups: Introduction
The Wilder relative strength
index (RSI) is a price momentum indicator that is useful for intraday trading.
Values above 70 mean price is nearing a top
or correction of the uptrend. Values below 30 mean price is nearing a bottom or
retrace of the decline. The RSI's primary value
is calling the turning points in a trading range market (between support and
resistance).
As an overbought, oversold
indicator, it works 75% of the time, but it says nothing about how far price will
travel. As a divergence indicator, where
the indicator diverges from price and points to a new trend, it proved accurate and
timely, working between 76% and 82% of
the time.
Here are some trading rules
that should help with profitability.
- Buy when the RSI indicator rises above 30 from below, especially if accompanied
by high volume (or volume trends upward).
- Sell when the RSI indicator drops below 70 from above, especially if
accompanied by high volume (or volume trends upward).
- If RSI is midrange (between 30 and 70), then ignore it, including divergence
signals.
- Trade after a straight-line price run and divergence appears with the RSI indicator.
RSI Trading: Overbought and Oversold Signals
Here are the trading rules
for using RSI as an overbought or oversold indicator. These assume a 14-period
look back on the RSI and a 10-day intraday price
chart.
- If you have access to tools that you can change the 14-period look back, try
tuning it for your market.
Locate regions of support and resistance and see if changing the 14-period look back
to another value will give you better
turning point prediction. You are looking for signals that help you time the move
from support to resistance and back again.
Perhaps you want to use different signal lines than 30 and 70 (like 20 and 80).
Play with it. See if you can get RSI to signal when it hits or approaches support
or resistance zones.
- Find your buy or sell candidate in the usual manner, following rules and
procedures you have already setup. Plot the RSI indicator. For example, if you see
price topping out, high volume accompanies the turn, and RSI says the stock is
overbought, that's a sell signal.
- If RSI is above 70, then wait for it to drop below 70 before trading. Close out
a long trade, go short,
or buy a put option. Large price declines often start from the overbought region.
High volume can confirm the trend change.
- If RSI is below 30, then wait for it to rise above 30 before trading. Then buy,
cover a short, or buy
a call option. Large price advances often start from the oversold region. High
volume can confirm the trend change.
- If RSI is midrange, then ignore the signal.
RSI Trading: Divergence
Looking at your charts, it
may be unclear whether you look for divergence along the price peaks or valleys.
Here's a system that works.
- If the price trend is down, use the bottoms to look for divergence
- If the price trend is up, use the tops to look for divergence.
- If price is moving horizontally (a trading range), then don't look for
divergence, especially if the indicator is between 30 and 70!
Here are the rules for trading
on bullish divergence.
- Avoid divergences that occur in the RSI neutral zone (between 30 and 70). Price
will follow the indicator,
but the move may or may not be significant.
- If price is moving down, then look for divergence along the price and indicator
lows not the highs.
- Look for a straight-line run down
- The indicator should bottom near or below 30.
- If bullish divergence occurs, that's the buy signal.
- If volume is trending higher or spikes higher, that helps confirm the buy
signal.
- If the indicator makes a new low, then close out the trade (failed bullish
divergence signal).
Here are the bearish divergence
trading rules. They are similar to the bullish divergence rules.
- Avoid divergences that occur in the RSI neutral zone (between 30 and 70). Price
will follow the indicator,
but the move may or may not be significant.
- If price is moving up, then look for divergence along the price and indicator
peaks not the valleys.
- Look for a straight-line run up to show upward momentum.
- The indicator should top out near or above 70.
- If bearish divergence occurs, that's the sell signal.
- If volume is trending higher or spikes higher, that helps confirm the sell
signal.
- Confirm with a trend following indicator that the trend has indeed changed.
- If the RSI indicator makes a new high, then close out the trade (failed bearish
divergence signal).
-- Thomas Bulkowski
See Also
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