The RSI Trade

Hi,
Just to round of the previous post --

Trading should be easy, we should not have to search for our signals - they should be obvious

Using the RSI helps take much of the mystery out of price action

Some of the advantages of using the RSI are:
It offers set support/resistance zones (see earlier posts)- no need to study price charts and make these decisions.
Offers timely signals comparable to that of pure price action (this does not mean that we neglect learning how to read price action)
Very good at picking out divergence with price (great when used in tandem with the CCI(10) - what one may miss, the other picks up
Can be used for line studies. e.g. our trendlines help define trends, or to define patterns.
Etc, etc

Knowing what the various RSI S/R levels represent, we know the possibilities when we have a trendline breach occur at these levels.

Basically trends start from one of two conditions-
Consolidation (congestion), or from a trend reversal (or large retracement/rally)

We know the RSI S/R levels where these occur ssoooooooooo theoretically
THESE ARE THE TRADES WITH THE GREATEST POTENTIAL!!

Before taking a signal - we should look for some form of confirmation i.e. from trend structure (pivot hi/lo sequence), divergence (CCI is very sensitive to this), a price reversal bar etc etc

We construct our trendlines from the RSI pivots as soon as we have 2 lower pivot highs (downtrend), or 2 higher pivot lows (uptrend)
As with everything concerning TA, some are better than others

In constructing our trendlines, only use pivots that form a well defined reversal (V or U)
Discard a pivot whose last "leg" tends to run parallel to the "trendline" that could be drawn by using it
A pivot whose last "leg" crosses the trendline is obviously discarded even though it may conform to the higher hi, higher low or lower high, lower low requirements for an uptrend or downtrend

I think after checking this out against your charts, you will be able to define your potentially best trades

Just take the obvious

Check your charts and make your own rules to suit your requirements.
The above is something to expand upon. If you have never seen something before then you will not recognise it - I.E. you will not see it
The above is the basic bones of a winning system - make it your own - good luck - sorry good TRADING

Peterhttp://cdn.forexfactory.com/images/icons/icon7.gif
PS I use RSI(9) and trade the daily timeframe.

hello kareem
I checked the site You mention but I haven't found anything regarding screening forex.
thanks for your help

Hi Ruffyn,
You are welcome. Sorry I could not help.
Kareem

Hi Peter,
Again thanks for the post. One thing you did mention is the use of the 9 period RSI. So I started thinking maybe I should use a different RSI setting. I put two 1H charts of the EURUSD, one with 21 RSI and the other 8. I use the 1H since I could not get MT4 to give me 2H, which I tend to use more now. Now please note I am going for longer term trades, 100 pip target 50 stop.
So here are the pictures. The 8 RSI would have me short already, while the 21 said wait too early to enter. I will follow up in a couple of hours. My guess is that the 21 was, and still is, the right one to use.
We will see.
Kareem

It seems as the 21 RSI does hold better. Of course this is not scientific, but good enough for me.
Kareem

Took the bounce of the RSI (21) trendline. Worked out for a 26 pip profit.
Kareem

I am waiting on this line break. Looks as it may be a promising short trade when it breaks.

Hi K.
Got your pm the other day . thanks for that . glad to hear you and yours are doing ok. you do love the 21 rsi don't you. i have stuck with the 14 so somewhere between you and peter with his 8.
i have been trading only cable for some time now with just 14 rsi and 30 simple ma and 14 ema applied to the rsi. Check out the bounces from the ma's.
taken in tandem with pin bars and rsi 30,50,70 breaks the results have been great. ( I also look at the 40/60 and 60/80 range as peter recco'd a while ago).
When these trigger and a line holds or breaks with a tight stop loss opportunity then bingo.
As for your reply with the 8 or 21 question when the 8 would have signalled an entry you would still need to wait for the previous price high to break. The rsi 8 said enter but the price just tapped res turned support.
I also use the 9ema on price still to guide me.
Nice to see you trading instead of working.
Andy

Nice to see here again Andy. Great Post. I will check out your set up and ask some questions. I am going to do as much posts as possible this week since am off, but will slow down some after work kicks in.
Please do post a picture of your set ups.
Nice to have the old gang together for the holidays!
Kareem

Here is a nice short trade setting up.
Kareem

Looking good so far. Stop just above the recent highs, Target around 1.4900.

Hi Kareem/Andy
As mentioned early on, I do not trade FOREX, I trade stocks (ASX)
I post here because of the friendly helpful environment.
I follow quite a few interesting threads on the forum, always looking for ways to improve my trading, and there's no better place than here
The RSI is my favourite indicator and I know it works through any market condition!!!!!!!

RSI time period (9,12, 21, whatever)
Perhaps I should not have mentioned the time periods that I use, I did so without thinking (bit selfish)
However it's the application that counts

I've noticed that its not uncommon here to trade just the one pair and I can appreciate why, as like stocks, each has its own inherent characteristics - so it would be a reasonable assumption, that it is probably in our own best interest to calibrate our RSI for optimum performance for the pair being traded and its current condition? (trending or range trading)
Using a longer time period will give les trades and in the process remove some of the noise from your signal, and vice versa for reducing the time period - guess you just have to experiment to find what works for you.

I trade a whole basket of stocks using the 9 period and have found that it works very well for me (I also use other filters)
My trades are always low risk, so it is not uncommon to be stopped out early, this is not a concern, just part of the art of trading
I always have a re-entry plan - no problem

In the current environment I only stay with a trade if it is moving in my expected direction, and as soon as I enter, I start looking for signs of weakness and an opportunity to exit.
When the overall market is trending, I'm happy to go for the home run based on the RSI passing up thro 60 and staying with it until it falls below 40 - a much more relaxing way to trade

However this may change following my recent experimenting with RSI pivots
Pivots and their derivative trendlines are something special

If you study pivots and their trendlines you will see that they show the short term trend and how they combine to form longer term trends
Look at any chart and these short and longer term trends are there
You can do a form of multi timeframe analysis from the one chart!.

I've been looking at charts for years but never really noticed the trends within trends on every chart - so obvious now since spending some time looking at pivots/trendlines

Who said you can't teach old dogs new tricks?

The RSI is basically a magnified version of a pairs line type chart - but offers the tradeable events where this is not the case (divergencies)

Well its back to the drawing board and pivots and trendlines
(beats lying by the pool getting sunstoke)

Such is life http://cdn.forexfactory.com/images/icons/icon7.gifhttp://cdn.forexfactory.com/images/icons/icon6.gif

Take care
Peter

Kareem, In your option was this a valid entry, or would you wait for PA to break the trend line under it..?

Thanks for any help

Rebel

Hi Kareem,
Nice entry, long tail poking below RSI trendline and closing above.

Do you mind if I enquire why you exited on the next bar?
(you don't have to answer, I'm just curious)

Regards
Peter

It is still runing without me. I had move my Stop to break even. Something I always like to do after 20+ pips, and did get stoped. It happens. New line is forming, will look for that break as it will be a long with the long term trend.

Good point about the different pairs/different stocks. I have been trading mostly EURUSD for so long that I did not think much about other pairs. How are you doing your research? What software do you use? Everything I have been doing so far have been visual. You maybe right the 9 is better than 21! Would be nice if I can quantify my RSI set up one day.
Again thanks for all the feedback. Please do keep posting.
Kareem

Hi Rebel,
Nice to see you back. I only take the RSI trendline break, as soon as it breaks. The idea behide this set-up is that the RSI is (maybe) a leading indicator ( if there such thing). I took the same exact trade last night. I sold at 1.1533, results (below) stopped BE.
Thanks

Hi Peter,
I have two charts on at all times. One is for the EURUSD and the other is for SP500 (US index). Along with the RSI I have another indicator that shows cycle tops and bottoms for both markets. At the time of the exit I did get major top signal for the SP500 with an exhaustion volume bar. As you know the SP500 has been following the EURUSD almost tick for tick.
Also it seems as lately many of my exits have been gut feel. Sometimes I am having a good day, with a couple of nice wins and would keep the winning streak. So I would quickly move to Break Even (BE) or take whatever the market has given me at that time.
Of course sometimes, I take stupid exits as well, Ones that make no sense and at the worst possible time!
I would like to ask you about your stock trading as I am day trading stocks as well with a prop firm. I am barely breaking even , and found it to behave much different from FX. Can I PM you. It maybe better to keep stock discussion on its own.
Thanks

Hi Kareem , Peter !!! I'm glad you are back.
I just want to salute you.
A little contribute : eurgbp buy two lots at the break of bearish rsi trendline + macd . close one lot and put the stop of second lot at break even.
Thanks

Glad to see you back as well. Great trade. Hope to see more of these posts soon.
Kareem