INDICATOR - RSI.pdf

How to Use RSI Indicator in Trading

1. TECHNICAL ANALYSIS MODULE 3
❑TECHNICALINDICATOR:RELATIVESTRENGTHINDEX(RSI)
➢RSIISLEADINGINDICATORASWELLASANOSCILLATOR.
➢RSIISUSEDTOIDENTIFYTHEOVERBAUGHTANDOVESOLDZONESOFANYSTOCK.
➢ONECANLOOKFORBUYINGOPPORTUNITIESWHENSTOCKISINOVERSOLDZONES.
➢SIMILARLYONECANLOOKFORSELLINGOPPORTUNITIESWHENSTOCKISINOVERBAUGHTZONE.
➢BUTDURINGSTRONGTRENDRSIMAYREMAININOVERBAUGHTOROVERSOLDZONEFOREXTENDEDPERIOD.
➢RSIRANGESFROM0TO100WHERE
➢BELOW40ISCONSIDEREDASOVERSOLDZONE
➢40-60ISCONSIDEREDASSIDEWAYSZONE
➢ABOVE60ISCONSIDEREDASOVERBAUGHTZONE
➢FORBUYINGORSELLINGOPPORTUNITYFINDCANDLESTICKPATTERN,CHARTPATTERNORDIVERGENCEINSAIDZONES.
➢DIVERGENCECANBEUSEDTOTAKEPOSITIONSIFOBSERVEDINOVERBAUGHTOROVERSOLDZONES.
➢DIVERGENCE-ADIVERGENCEISWHENTHEPRICEOFANASSETMOVESINTHEOPPOSITEDIRECTIONOFATECHNICALINDICATOR.
THEREARETWOTYPESOFDIVERGENCES.
➢BULLISHDIVERGENCE
➢BEARISHDIVERGENCE

2. TECHNICAL ANALYSIS MODULE 3
➢BULLISHDIVERGENCE–
➢ABULLISHDIVERGENCEISOBSERVEDWHENTHEPRICEOFANASSETMAKESALOWERLOW(i.e.INDOWNTREND)ANDRSIMAKESAHIGHERLOW
(i.e.INUPTREND)
➢IFBULLISHDIVERGENCEISOBSERVEDINOVERSOLDZONE,THENSTRONGUPMOVEISPOSSIBLE.
➢BEARISHDIVERGENCE–
➢ABEARISHDIVERGENCEISOBSERVEDWHENTHEPRICEOFANASSETMAKESAHIGHERLOW(i.e.INUPTREND)ANDRSIMAKESALOVERLOW(i.e.IN
DOWNTREND)
➢IFBEARISHDIVERGENCEISOBSERVEDINOVERBAUGHTZONE,THENSTRONGDOWNMOVE ISPOSSIBLE
PRICE
RSI
PRICE IS MAKING LH-LL BUT RSI IS MAKING HH-HL
THIS IS CALLED BULLISH DIVERGENCE
DIVERGENCE SHOULD OCCURE IN OVERSOLD ZONE i.e. BELOW 40
PRICE
RSI
PRICE IS MAKING HH-HL BUT RSI IS MAKING LH-LL
THIS IS CALLED BEARISH DIVERGENCE
DIVERGENCE SHOULD OCCURE IN OVERBAUGHT ZONE i.e. ABOVE 60

3. TECHNICAL ANALYSIS MODULE 3
❑TECHNICALINDICATOR:RELATIVESTRENGTHINDEX(RSI)
➢ASCANBESEENBELOWWECANSEESELLINGOPPORTUNIYINOVERBAUGHTZONE
➢ANDBUYINGOPPORTUNIYINOVERSOLDZONEWITHHELPOFCANDLESTICKPATTERNS.

4. TECHNICAL ANALYSIS MODULE 3
❑TECHNICALINDICATOR:RELATIVESTRENGTHINDEX(RSI)
➢ASCANBESEENBELOWWECANSEESELLINGOPPORTUNIYINOVERBAUGHTZONE
➢ANDBUYINGOPPORTUNIYINOVERSOLDZONEWITHHELPOFCANDLESTICKPATTERNS.

5. TECHNICAL ANALYSIS MODULE 3
❑TECHNICALINDICATOR:RELATIVESTRENGTHINDEX(RSI)
➢ASCANSEENBELOWRSICANSTAYINOVERBAUGHTZONEFOREXTENDEDTIMEDURINGSTRONGTREND.
➢SOINSTEADOFFINDINGSELLINGOPPORTUNITIESWESHOULDBEFINDINGBUYINGOPPORTUNITYINOVERBAUGHTZONE.

6. TECHNICAL ANALYSIS MODULE 3
❑TECHNICALINDICATOR:RELATIVESTRENGTHINDEX(RSI)
➢BELOWISTHEEXAMPLEONHOWDIVERGENCECANBEUSED.

7. TECHNICAL ANALYSIS MODULE 3
❑TECHNICALINDICATOR:RELATIVESTRENGTHINDEX(RSI)
➢BELOWISTHEEXAMPLEONHOWDIVERGENCECANBEUSED.