RSI Stock Indices Technical Analysis & RSI Indices Trade Signals
Developed by J. Welles Wilder, explained in the book "New Concepts in Technical Trading Systems".
Relative Strength Index is the most popular indicator and it is a momentum oscillator and a indices trend following indicator. RSI compares a indices trading price magnitude of the recent stock indices trading price gains against its magnitude of recent losses stock indices trading price losses & plots this data on a scale of values which ranges between 0-100.
Relative Strength Index measures the momentum of indices; values above 50 signify bullish momentum while values below 50 center-line signify bearish momentum.
- RSI is drawn as a green line
- Horizontal dashed lines are plotted to identifying overbought & oversold levels are i.e. 70/30 levels respectively.
Stock Indices Technical Analysis & Generating Trading Signals
There are several techniques used to trade, these are:
50-level Crossover Signals
- Buy signal - when the indicator crosses above 50 a buy/bullish trading signal is given.
- Sell Indices Trading Signal - when the indicator crosses below the 50 a sell/bearish trading signal is given.
RSI Indices Chart Patterns
Traders can draw indices trend lines and map out stock indices chart patterns on the RSI indicator. The Relative Strength Index often forms stock indices chart patterns such as head and shoulders stock indices pattern which might not have formed clearly on the stock indices trading price chart.
Stock Indices Support/Resistance Breakouts
RSI is a leading indicator and can be used to predict Support/Resistance Breakouts before stock indices trading price breaks its support/resistance level. RSI uses the swing failure signal to predict when stock indices price is about to break resistance and support regions.
Swing Failure - Support & Resistance Break out
Overbought/Oversold Conditions on Indicator
- Overbought- levels above 80
- Oversold- levels below 20
These levels can be used to generate indices trading signals such as when RSI turns up from below 20 after oversold, buy and sell when RSI crosses to below 80 after overbought, sell. These signals are not suitable for trading Indices because they are prone to a lot of whipsaws.
Divergence Indices Trading Setups
Divergence trading is one of the technical analysis method used to trade reversals of the stock indices trading price trends. There are four types of divergences that can be traded with this indicator covered in the divergence tutorial on this website.
