Using RSI to form an Easy Trading System|
by Charles Carr
RSI provide a good indication whether a stock is
considered overbought. When RSI is around the 70-80 level,
it is considered to be overbought condition and you should
consider selling. This is because an overbought stock since
stocks often trade at higher valuations during bull markets
is likely to fall. Likewise, if the RSI approaches 30 a
stock is considered oversold and you should consider buying.
Thus you would be able to use simple RSI to validate the
patterns and cycle for different stocks. The shorter number
of days used, the more volatile the RSI is and the more
often it will hit extremes. A longer term RSI is more
rolling, fluctuating a lot less.
We advise to us different threshold levels for Different
sectors and industries for the RSI Measurement.
Backtesting the stocks in some industries's pattern with
different RSI value would reward you with more accurate
We would definitely define a simple trading system using
RSI for Short Term Trade.
If RSI(10) < 25 Buy Long
and close position when RSI(10) > 55
If RSI(10) > 80 Buy Short
and close position when RSI(10)<55
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