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RSI Indicator: The Best Way to Trade RSI Based on Data

how to use rsi for day trading

When you’re on the side of the trend, your win rate naturally goes up as well. When your average gain is greater than your average loss, and this pretty much means that the size of your bullish candles is larger than the bearish candles. The arrow points to potential short selling entries based on the price breaking above or touching the RSI 70 level during a short-term downtrend. In this case, you might want to use a longer-term moving average, such as a 100-period MA, to determine the trend. Overbought and oversold levels indicated by RSI can continue for long periods, forcing scalpers into multiple entries into the market. Swing traders typically use these tools as two of the most common strategies when using the Relative Strength Index in their analysis.

What is the 5 star RSI strategy?

The 5-Star Relative Strength Index (RSI) Strategy-Short

If a bearish candle is formed at the 60 RSI level, the prices may bounce back from there, and one can enter the stock for shorting. The stoploss can be placed at the high of that bearish candlestick, and the target can be the 40 Relative Strength Index levels.

A regular crossover from the moving average is not enough to exit a trade. We recommend waiting for a candle to close beyond both lines of the moving average cross before exiting the market. In this trading strategy, we will combine the RSI indicator with the very popular MACD. The challenging part of this method is identifying when a trendline break in the indicator will lead to a major shift in price.

RSI Indicator Testing Reveals Losing Trades

If you need to use horizontal lines on your chart to verify that the candle has closed the lowest of the last 50, you can do so. This is not necessary but may be helpful for you to do and see how strong the trend is. You probably never heard you can overlay two RSI oscillators with different periods on how to use rsi for day trading the same window. But, this is possible with most trading platforms including TradingView and MetaTrader 4. Without correct settings, even the best trading ideas can end up in disaster. However, before we get into that, we need to make sure the RSI indicator is in tune with the medium-term swing trends.

When the RSI hits or exceeds values of 70 or 30, signaling overbought and oversold, they enter counter trend positions. Sometimes the prices can stay a long time in the overbought or oversold areas and during that time they can continue to go higher or lower. During periods of strong upward trends of downward trends, markets can remain in the overbought or oversold areas for days, weeks or even months. In short time frames, the Relative Strength Index is very volatile, frequently reaching extreme highs and lows, and generating contradicting signals.

Enhancing Your Trading Strategies Through Combining The RSI With Other Technical Indicators

Because the stock markets, in the long run, are in a long-term uptrend. The RSI indicator is very useful to help you time your entries on these pullbacks. On top of it, when you trade with the trend, the market tends to persist in that same direction when it’s trending.

  • By combining Bollinger Bands with RSI, traders could gain additional confirmation of overbought or oversold conditions.
  • Since we have two matching signals from the indicators, we go long with IBM.
  • When you can combine multiple studies, indicators and zones that tell you the same story — that is a good quality trade setup.
  • Enjoy the highest earning rates in the market with top performing trading strategies.
  • In this setup, you will enter the market only when you have matching signals from both indicators.

One of the main benefits of using RSI is that it helps identify overbought and oversold conditions in a security or market. This can help traders make better decisions on when to enter and exit positions, improving their chances of success and helping them manage risk more effectively. RSI is also relatively easy to calculate and interpret, making it an accessible indicator for traders of all experience levels.

How to set the RSI indicator?

Others may feel that one signal’s change of momentum may be a harbinger of the other signal’s change of direction and a corresponding shift in price movement. RSI is better than all moving average indicators, based on 2,880 years of backtesting data. Our research indicates that RSI outperforms moving averages with a 53% win rate vs. the SMAs’ 12%. Both indicators have poor success rates and are not recommended for traders on standard charts. When MACD is combined with RSI, it can help to identify trend reversals and confirm signals from either indicator. For example, if MACD is indicating that a stock is overbought, RSI can be used to confirm this signal.