Education

How to Trade With Relative Strength Index (RSI) Indicator

Hey traders,

Relative strength index is a classic technical indicator.

It is frequently applied to spot a market reversal.

RSI divergence is considered to be a quite reliable signal of a coming trend violation and change.

Though newbie traders think that the application of the divergence is quite complicated, in practice, you can easily identify it with the following tips:

💠First of all, let's start with the settings.

For the input, we will take 7/close.

For the levels, we will take 80/20.

Then about the preconditions:

1️⃣ Firstly, the market must trade in a trend ( bullish or bearish )

with a sequence of lower lows / lower highs ( bearish trend ) or higher highs / higher lows ( bullish trend ).

2️⃣ Secondly, RSI must reach the overbought/oversold condition (80/20 levels) with one of the higher highs/higher lows.

3️⃣ Thirdly, with a consequent market higher high / lower low, RSI must show the lower high / higher low instead.

➡️ Once all these conditions are met, you spotted RSI Divergence.

A strong counter-trend movement will be expected.

Also, I should say something about a time frame selection.

Personally, I prefer to apply it on a daily time frame, however, I know that scalpers apply divergence on intraday time frames as well.

❗️Remember, that it is preferable to trade the divergence in a combination with some price action pattern or some other reversal signal.

Let me know, traders, what do you want to learn in the next educational post?

VasilyTrader

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