So in this weeks article we will talk about the RSI. This is one of the most used indicators in trading and it's for a good reason. It's simple and effectively showing data.
The basic settings are set to horizontal lines of 30 - 50 - 70
If the pink line is below 30 it means the asset you are looking at is "oversold". This indicates that there has been a lot of sell pressure and that the sell pressure might soon run out of steam. So a buyback may be indicated.
If the pink line is below 70 it means the asset is "overbought". This indicates that the bulls (buyers) might also run out of steam, and the price might retrace.
Actually the RSI isn't that hard to apply.
1.You watch the chart, make sure you make the support and resistance area's 2.When the price is hitting your support area + Price is oversold it's is an indicator to buy.
In this example you can see the price is hitting the support line. Now it's going to retest again + RSI is about to touch the 30 (Oversold).
Same applies for SHORTING. Is the price about to hit a resistance level + RSI overbought: Short indicator.
Now the 50 level. (This is a level many traders forget).
IF you are in an obvious uptrend, you can expect the price to retrace. You could draw a trendline in which the price is moving to show yourself where the price can bounce. In my personal experience I have seen the price respecting a trendline with a big green candle when RSI is on the 50 level and BOUNCES ON THE RSI.
Try to backtest it and implement it in your trades. let me know what you think of it!
Come discuss with my and 9 other analysts in our free discord: https://discord.gg/novatrading