The RSI Trade

I have read a lot where you mentioned. It was about divergence trendline, support resistance. I am just curious of what you use with rsi except cci 10. secondly you use RSI (9). Is it close, weighted close, typical price, high or low bla bla..?

I will be happy if you answer
Thank you
QQE

Hi Qqe,
Please refer to page 24 posts 346/347
I should have included CCI in 346

The RSI that I use is based on the closing price

Trading should be easy, - if you have to search to find a signal on a chart, - then it is probably not there!!!

Just trade the obvious and you will likely end up with a higher probability trade.

If any of the statements which I have used in the past is not too clear (or doubtful), just ask and I will try to answer them (I do not check what I have written before hitting the "submit button")

Have a nice weekend
Peter http://www.forexfactory.com/images/icons/icon7.gif

Hi Andypips,

Mind sharing your entry and exit rules? What time do you trade? A picture/s would help a lot.

Thanks.

Hi Peter,
Thank you for answering.
I try the way that you posted at 23th page. It is really profitable and stop loss is very small.

There is a difference between you and me. You try it at both daily and H4 graphes. Actually I try it at both H1 and M30.

Thank you very much for showing the way of success. My "forex" view has been changed

Have a good day
QQE

Lizpet,

I have been lurking in the background for a while. I have been researching your RSI S/R levels this week and really think that I will incorporate in my trading. I have ordered two of the books you reccomended, and will order the third RSI: Logic, Signals and Timeframe Correlation, after I finish the first two. Which is the most useful?

I have backtested using the 40 level Support for longs and exiting when the RSI drops below the 60 level, and am really surprised how much of the move you capture. I have also noticed ( as you mentioned) one could also exit after the long passes back through the 40 level to get a huge winner. Vise versa for shorts.

I have a question about entry positions. You mentioned in one of you posts that you can have a tight stop using this method. I have noticed when lets say you have a RSI bounce off the 40 level and it is a good bullish bar with no or very little tails that you could possibly position you stop 1/2 of the bar length. Am I on the right path? Would you mind sharing more information on your tight stop comment.

I really appreciate you sharing this method. Thank you.

Hi BlueBull
I will explain briefly but if you need more then pm me as this isn't rsi.(saying that I added a 14rsi with a few line breaks shown on there) I use h/ashi and look for colour change away from sup or res. At the moment I am trading ey only but this may change. Only trading one pair allows you to learn its pulse. I find that using the m1 charts an entry can show from an ema cross, a cci zero line cross, a move away or back to the 200ema. One of the best is when we are in a nice move (let's say down)and the emas come back and kiss off each other without crossing. The h/ashi turns neg again and you enter short. Nice tight stop above emas if you have got it wrong. The cci would want to be below and rejecting the sma in this case.
In the second chart this is shown by the arrow and the vert line.Also see how the cci tests the 50 and 100 here. The RSI also tests the 45 line and fails.
Time for trading is usually 7 GMT through to 22 gmt ish. I am not full time at this every day yet so it varies. Some days 1 hr others 15 but usually about 7 to 8 hours. Best results for me at 7 to 10 gmt.The first chart shows three short and 4 long entries. These are m1 and I may only go for 5 each. I usually enter with a 20 tp and 20sl. if I see the momentum stalling then I'm out with what I get, average 10ish. these examples have little follow through and are post nfp. I did not trade after 9 this morning.
I will let it run if looks good and can move my tp quick enough. Other days it may be 5 or 10 all day long. On the m1 I pretty soon realise if we're in for a ranging day with little follow through.
Not very brief was it. 2 pictures for those of you fed up reading though.
Hi Kareem. How's it going? JTrade is away in Italy I believe selecting some nice wine for christmas probably.
Hope this explains.
Andy

Hi Danny and Qqe
Hope Lizpet doesn't mind , I'll post one explaining what I think He means. Excuse my artwork, it's not the best.
I chose H1 on ey and rsi9 as peter trades longer time frames than me. Once over the 80 level on rsi start moving up the stop as per the red lines each time a new candle is opened. You can see it would have closed out on the start of the second white candle. The same would apply to a smaller time frame. I personally use a moving average but will give this method more screen time. We know we are in very overbought territory so candle by candle is probably a better way.
Cheers
Andy

Hi Tarco,
Books
I found Constance Brown and John Hayden books , which I read ages ago, very helpful in defining up and down trends
From this info the RSI S/R levels became obvious as did the start and end of a trend

Baeyens book: I found it interesting, but his use of RSI channels did not work for me
When I read a book, I always have my trading software running so that I can check what is being said against my own charts to see if it is "workable" for me
I could not get his channels to work as I could not find many hidden divergencies - that was checking against ASX stocks, it may be different for Forex?
Anyway, I did not finish the book, It does offer many sample charts to explain his findings

Entries/Stops
The risk that you are comfortable with is what determines where you set your initial stop
Personally I set my stop just below the low of the signal bar - and I NEVER lower it.
Exits - I never set targets, I take what the market offers - once in a trade and it moves in my direction, I treat each RSI resistance level as a possible exit (I can only trade long) and move the stop to just below the price bar as the RSI approaches resistance - if it goes thro resistance - good - and repeat for the next resistance level - once past 80 (no further resistance levels) I place my stop below each consecutive bar until I am taken out

40 levels
a Uptrend RSI levels 40/80
A level of 40 indicates a possible bottoming formation within an uptrend (if it drops below 40 then there is the likelyhood of a trend change!)
b A level of 80 and above indicates a possible topping formation within an uptrend (if it falls to 80 or 60ish and rebounds, we have a retracement, and a signal to re-enter

Another reason to move my stop below the current bar is when the RSI gives a bearish divergence, and talking about divergence - if I should encounter a hidden divergence - then I will add to the position!

The RSI passing up thro 60/65 level usually indicates a breakout from consolidation - if you use Bollinger Bands - they will be showing a narrow throat, this is the start of a new uptrend
If the Bollinger Band throat is wide when the RSI passes up thro 60/65- this could indicate a trend continuation
If the Bollinger Band throat is wide as the RSI passes up thro 40, this could indicate a new trend following a large retracement from a previous up move. The trend is confirmed when the RSI passes up thro 60/65

Hope this helps Tarco
I have probably repeated myself from previous posts - just put it down to old age http://www.forexfactory.com/images/icons/icon7.gif

Hi Andy,
Thanks for the chart http://www.forexfactory.com/images/icons/icon14.gif - thats exactly how I would have traded it once the RSI went above 80.
Also on your chart, I would have had a stop below the 7th - 9th bar in from the left, as the RSI approached 80 - just incase the 80 acted as resistance and rejected the upmove - as you can see this level was never taken out and the RSI proceded on its merry way

Hope the above gibbering makes sense

Have a nice weekend
Peter

At the end, I realize that the forex and other markerts based on RSI S/R (20,40,60,80 points). Maybe because of the reason that it has been an old indicator and used by many traders. As peter mentioned, it is really guidence to follow the trend.

Thank Peter, karem40 and other friends to make me get what really RSI is..

Hi,
For those interested, I just noticed that I did not include another reason for taking an exit.

i.e. If the move is up and it has crossed up thro a RSI resistance level, if it should then decline and drop back down thro this level (now support) - this would also qualify as an exit.
Just trade the RSI R/S levels as you would price R/S!

Although I can only trade long, I am quite happy to take a long trade on a down trend rally/trend change.

i.e. In a confirmed downtrend - RSI has fallen below the 40/35 level, rallied back up and bounced of the 60/65 level. If it falls back to the 20 level (i.e. forming a bottom within a downtrend), I would place an entry just above the high of the current price bar, and away we go again if the RSI bounces.

All this may look a bit confusing so why not just draw the RSI CHART and add all the R/S levels that I have mentioned in earlier posts and play around with it - colour code the up trend levels in green and the down trend levels in red and the 50 level in black, and just check out what I have mentioned in the various posts - It could turn out to be a profitable way to spend a Sunday OR MAYBE NOThttp://www.forexfactory.com/images/icons/icon8.gif

The info in my posts are probably a bit disjointed - thats just me, I know what I want to pass on, but somehow I'm not that hot at explaining things.
Sorry for any confusion caused, old age does not come on its own

Don't worry - be happy, its only money!
Peter http://www.forexfactory.com/images/icons/icon7.gif

Thank you for your reply. I use bollinger bands and RSI now after studying your RSI channels. I like the simplicity of the charts using these two inidcators and believe that this combination gives a very good represention of the market. I am trying to find my style of trading and believe that I will continue to work with a similar way of trading as yours.

I appreciate your posts here and hope you continue to add your valuable comments. I have googled RSI channels and there are not many people using this method as far as I can tell. So your comments and replies are very much appreciated.

You are explaining things very well.

Have a good weekend.
Tarco

I have a quick question if you do not mind. Do you ever consider the sharpness or pointedness (not a very good use of english but not sure how to describe it) of the RSI bounce as affirmation of an entry? As opposed to a curved or rounded bounce from a SR level

Thanks and have a good weekend.
Tarco

Hi Tarco,
Thanks for the appreciation.

In answer to your query - I would say a sharp bounce of a level is more decisive (more commitment) than a "rounded" bounce which to me shows a lack of conviction and some uncertainty.

Bollinger Bands: A good book on Bollinger Bands, I think, is "Dynamic Technical Analysis" - Philippe Cahen - Wiley Trading - its a French translation,but very good. In my opinion much better than Bollinger on Bollinger Bands which I found quite basic
Cahens book describes the various Bollinger Band formations and how to trade them!. It about 130 pages - but no story telling, just facts

Back to the RSI
Here's something to consider:

Once you check out the RSI S/R levels and think they may have potential - the next step most traders take is to start adding filters to "increase their edge"

The obvious filter would be to compare RSI S/R with Price S/R E.G. horizontal S/R trendlines, channels, Fibonacci levels patterns etc etc - oh and while you are at it why not check out to see if your signal coincides with some form of candlestick reversal bar(s)?------------ there is no end to this futility for the dedicated analyst!!!!

A truth often said is that we humans have an inherent capability to complicate everything that we touch!!

If you beleive that you have more chance of "guessing" where price will be on the next bar as opposed to say 5 bars from now - why not just use the "system" you used to find the original signal and apply it to a higher time frame?

Timeframe analysis gives you the underlying structure of your "market". Get your timeframes in alignment and you have the probability of tuning into BIG moves!

I'm away to look for some inspiration, if only I can find my long lost crystal ball http://www.forexfactory.com/images/icons/icon6.gif

Its my turn to cook Sunday dinner, so I'll have to go and study the recipe - Pork Belly a la Pierre (can't let Liz beat me)

Cheeri
Peter http://www.forexfactory.com/images/icons/icon7.gif

Don't know whats come over me, all this posting. Put it down to idle hands and too much spare time!

Anyway here's another thought for to-day

This is only my opinion

Why does S/R work - they are psychological levels that we humans tend to gravitate towards

I can understand why this is so with Price S/R, but don't quite get it with RSI S/R - but they work for me and thats all that matters
Where is the logic in Fibonacci levels? they also work for some of us

The beauty of RSI S/R is that the levels are set - we have no input other than setting the zone levels (same as is done with price S/R)I.E. THE s/r level +/- value

With price S/R the technician has an input in deciding which are the relevant points thro which his S/R lines are drawn
- and we all know that not everyone sees a chart in a similar manner - for instance if you have not recognised a certain pattern before as being significant, then you will not see it when you look at a chart which contains it (although you recognise later that this pattern is significant)
So there is the posibility of drawing your S/R lines at not the best levels - also you are going to get heaps of possible S/R levels - which are the important ones?
Maybe you decide that to cut down your options you only take the levels that have proved to be both support and resistance in the past?

Other signals
RSI easily picks out trend weakness and strength thro divergence with price whereas with price only, its not so simple and takes a lot of experience

RSI can give signals before they are detected on pure PA
and they also sometimes give late signals - swings and roundabouts

The RSI trace lends itself to line analysis similar to price but with less "noise" i.e. trendline, patterns, dow theory etc (never tried Fibonacci?)

RSI levels are great for scanning for trades
You could scan a universe of thousands of instruments in the matter of a couple of mins to pick out candidates worth deeper analysis

Good trading http://www.forexfactory.com/images/icons/dollar.gif
Peter

PS For the IT buffs interested in the RSI - it could possibly be useful if they could know the price required for a certain RSI level to be hit
i.e. on the RSI chart - if they hover their mouse over a certain RSI level - up would pop the price required to give this RSI value---------
just me day dreaming - completely clueless when it comes to programming - in my day using a slide rule was considered cool!

Thanks again for your reply. I have been testing RSI channels with round numbers price action, pivot zones. I agree totally with your previous post about the RSI benefits vs Price action, the static levels of RSI seem to make things a little simpler for my thick skull anyway.

For the past four or five months I have been studying nothing but price around key levels i.e. round numbers, flip zones, s/r and fibonacci. Basically trying to find some confluence or multiple reasons to get in a trade. The problem I have trading naked with no indicators is my exit. With all the potential S/R levels that I see with the above mentioned studies, I see too many obstacles for price to bust through. I think RSI is a great guide to help you hang on to your winners. Like you said since it is static you can easily develop a system of exiting and repeat the process each time you trade.

You mentioined earlier that you move your stop behind the low of the bars as price approaches the RSI levels. Lets say you are long and price goes through the 60 level and your stop in below the corresponding bar that busted through the 60 level. So your RSI is between the 60/80 level. Do you keep your stop there until you approach the 80 level or do you continue to trail? Hope you do not mind the quesitons.

Thanks,
Forrest (Tarco)

I have a picture that is about RSI support resistance levels (20,40,60,80)

I use rsi 4 typical price. It is really simple for me to get.

http://img34.imageshack.us/img34/9382/57220277.th.gif

Euro 1hr timeframe using RSI. Comments are welcome.

Hi Forrest, Qge

Forrest, I would not leave my stop at the low of the bar that "busted thro" - I would move it to just below the resistance line "busted line" (now support)

It's good to see that you find RSI S/R useful, I'm sure you and other RSI enthusists in this thread can develop and improve it - I'm just happy to have planted a "seed"

Kareem and Andy have good experience, are good at explaining things and backing it up with sample charts, so I'll just back off now and watch from the sidelines.

If its of any help - I found the RSI hidden divergence to be the most reliable signal and ALWAYS worth taking
I notice from your Qqe and Forrests charts (couldn't make out the writting but what you were saying looked to be obvious from your markings on the charts) that hidden divergence seem to occur quite regularly - lucky you, on my stock charts they are not so frequent

Hitting the home runs: Use multi timeframe analysis!!

RSI S/R is a simple system that works in all market conditions - you just have to find your own way in defining how you grade your signals, which ones to take and which ones to be a bit wary of
Basic trading

Thank you Kareem for starting this thread

Happy (profitable) trading
Peter

Hi Guys,
Sorry for not posting for a while, but as you all know I have a full time job. Work has been very busy, and results are not as busy. I had to ,and will continue to, focus on my current job for now as I am unable to be a full time trader yet. But I might be forces to become one soon if my sales stay the same! I am doing some trading, but I only use the 4H chart (and the RSI of course) to trade with. It is still the old lines and divergences. I use long stops and target and look at my charts 10M per day to see where I stand. So far I am still at break even. I like what you have done with all the posts and I hope it will continue. I will do my best to post some of my 4H set ups.
Thanks to all for watching and keeping up with the thread. I have always believed that that more you give in life, the more you will get.
Kareem

Thank you for planting the seed. I will continue working through RSI. Don't be a stranger. I have printed all of your comments here.

Karreem great thread. Post when you can.