Educational post No 2=
RSI (Relative Strength Index) and Stochastic RSI are technical indicators used to measure the strength and momentum of a security's price movement.
*RSI (Relative Strength Index):*
- Measures the magnitude of recent price changes to determine overbought or oversold conditions.
- Ranges from 0 to 100.
- Typically, a reading above 70 indicates an overbought condition, while a reading below 30 indicates an oversold condition.
*Stochastic RSI (SRSI):*
- A variation of the RSI that measures the relative position of the RSI compared to its own high and low values over a given time period.
- Also ranges from 0 to 100.
- SRSI helps identify overbought and oversold conditions more accurately than traditional RSI.
*Trading Strategies:*
1. *Mean Reversion:* Buy when RSI or SRSI falls below 30 and sell when it rises above 70.
2. *Divergence:* Buy when the security's price makes a new low, but RSI or SRSI fails to reach a new low. Sell when the security's price makes a new high, but RSI or SRSI fails to reach a new high.
3. *Trend Confirmation:* Use RSI or SRSI to confirm the strength of a trend. If the security is in an uptrend and RSI or SRSI is above 50, it may indicate a strong trend. If the security is in a downtrend and RSI or SRSI is below 50, it may indicate a weak trend.
Remember, these indicators should be used in conjunction with other forms of analysis and risk management techniques to ensure effective trading decisions.
This post is prepared by #AakashAfridi
