If it’s over 70, sell it quickly...
If it’s less than 30, buy it quickly...
Is that true?
Preface
I believe many people will use the RSI indicator
Anything above 70 is overbought.
Close your position quickly and leave the market
If it is less than 30, it is oversold.
Hurry up and get in at the bottom
If you think so too
Then you are wrong!
RSI Relative Strength Index
Is it your friend or your enemy?
It's about the way you use it
If you know the positioning of this indicator
It can very effectively help you make correct trading decisions
Make money stably in the market
If you don’t understand the positioning of this technical indicator
It's very likely that you'll get a bloody head
Whatever you buy is wrong
What is RSI? 1
RSI Relative Strength Index It is an oscillator
It uses a line to show the relative strength and weakness between bulls and bears.
To measure the momentum of upward or downward strength
simply put
When the power of the Yang line is greater than the power of the Yin line
The value of the RSI indicator will rise
on the contrary
When the power of the Yin line is greater than that of the Yang line
The RSI index will fall
Generally speaking
When the RSI indicator rises to 70 or above
We would consider the current market to be in an overbought state
That is a signal to sell and exit.
When the RSI indicator falls to 30 and below
We would consider the market to be in an oversold condition
is a buy signal
So
The problem arises!
Since RSI is used to measure upward or downward momentum,
Then why is the upward force stronger than the downward force?
Should we sell it rashly?
Or if the decline has always been strong
Why should we rush to buy again?
Is not this contradictory?
There is a flaw in the logic!
Oscillators like RSI
It's like a pendulum swinging up and down
Its maximum function can only be exerted in a volatile market.
But the premise is that the amplitude of the shock is fixed within a certain range
When the deviation of the up and down movements will not be too different every time
Overbought and oversold trading strategies will be more accurate
Many instructional videos on the Internet tell us
When the market is overbought, prices will fall
When the market is oversold, prices will rise
but
What we encounter more often is
RSI remains overbought for a long time
But the price keeps getting higher and higher
Or maybe the RSI has been hovering in the oversold area?
Tell you to keep buying
But the price is getting lower and lower
leading to continuous losses
So this is the most fatal wrong usage of RSI
more specifically
The most fatal mistake of RSI is when there are no other factors cooperating
Make trading decisions solely based on overbought and oversold signals
We should look for more evidence, more market signs
to prove our judgment
Use the smallest risks and costs to maximize profits
RSI Advanced Strategy: Divergence 2
Next I will teach you more advanced usage of RSI:
RSI divergence
To put it simply
That is, the current price diverges from the RSI indicator.
Price says: I still have the strength to maintain the current trend
But RSI suggests that the momentum of this trend has become weaker and weaker.
There was a decadent trend
Things may change at any time
Before understanding this strategy
We first need to understand how to identify trends
general meaning
An uptrend is defined by three pivot points ABC
They are higher highs, higher lows, and higher highs.
If an uptrend continues
The market will continue to push prices up
Then let it go and let it pull back before pushing it up again
In this process, new higher highs and higher lows will continue to be formed.
same
in a downward trend
It is also formed by three fulcrums ABC
They are lower lows, lower highs, and lower lows.
same as rising
The market will continue to push prices down
Let it go and let it bounce back
Keep pushing down
In the process of a continued decline
The market will continue to create new lower lows, lower highs, and lower lows
Whether it's rising or falling
Behind the scenes, they are actually talking about one thing.
The power of buying when rising is generally greater than the power of selling.
The upward kinetic energy is greater than the downward kinetic energy
So the price rises step by step
when the market falls
The power of selling is generally greater than the power of buying
Downward kinetic energy is greater than upward kinetic energy
So the price is falling step by step
At this time
The undercover indicator RSI can work
On the surface, the K-line price is still higher than the previous wave.
Keep hitting new highs
But RSI, the undercover agent, secretly gave us hints.
Indicates that this trend has declined
Each time the market pushes upward, the momentum has been lower than the previous wave.
The power of buying may well have run its course
A new trend is about to start
The same goes for downtrends
The market is still making new lower lows
A wave is lower than a wave
But RSI goes against price
Making higher lows
The above two situations are called RSI divergence.
In addition to RSI
The concept of divergence can also be applied to other oscillator technical indicators.
Such as Stochastic, MACD, etc.
Divergence is also divided into two types: Regular (regular divergence) and Hidden Divergence (hidden divergence).
(Some people call it true divergence & false divergence)
What we talked about above is Regular (deviation from rules)
Suitable for trend reversal situations
There is also a departure from HiddenDivergence
Suitable for trends to continue
In order to avoid indigestion caused by absorbing too much knowledge
Regarding false divergence, we will explain it in detail separately another day.
At that time, I will cooperate with the two technical indicators MACD and Stochastic.
Today I will only learn Regular for the time being.
Just learn this well
It can greatly increase the success rate of your trading using the RSI indicator.
Although RSI divergence is possible
You can intervene in a reversal trend at the early stage of the trend
But the premise is that there must be a very precise entry point
Because this deviation is just a phenomenon
Let us know if there is a big opportunity or a new trend in the market next
We still need to use other confirmation signals
To help us find a precise time
Not too early, not too late
Intervene in the market at the best time
Real Offer Example 3
Next, let’s look at two real-life examples.
Example 1:
First RSI Bearish Divergence Chart
Although this is not a K-line chart of digital currency
But it can also explain the problem
The white line above is the RSI indicator.
We can see that the K line below is hitting new highs
But the RSI at the corresponding point is hitting new lows
It happens to be a form of deviation
I marked them with two lines
It will look clearer this way
This divergence tells us two things
No. 1: The upward force is weakening
No. 2: A bearish engulfing K-line pattern appears at the top of the trend, which is a good entry opportunity.
At this point we should decisively enter the market
Another point to note is that
The reason why I chose this chart as an example
I hope this example will tell you some transaction management practices.
Take this transaction as an example
Assume we target bearish engulfing as entry point
Your transaction has actually reached a profit-loss ratio of 1:1
According to common sense
This kind of list is actually not worth making.
then what should we do?
At this time we can set our stop loss point to the entry point
so
Our transaction becomes 0 risk
You will feel much more relaxed
Because you know that the worst case scenario is neither losing nor winning
Of course
Everything has two sides
What may also happen is that
The price hits your stop loss when it pulls back
and then continue to fall
Let you miss the opportunity
But if you don’t like the feeling of losing money,
Using this method can indeed help us reduce a lot of uncomfortable feelings.
make a deal
Survive first, make money later!
It is important to slowly build up confidence in trading
When you are truly familiar with this matter
It’s not too late to slowly look for more progressive methods!
Example 2:
Let’s look at another example of a positive RSI divergence
The K-line shows that the price is lower than the previous wave.
Hit a new low
But the RSI divergence line seems to have made a higher low
At the same time, we see a bullish engulfing K-line pattern at the bottom.
Proving that the power of buying is beginning to appear
and more powerful
Information provided to us by the undercover RSI
Coupled with the candlestick pattern as a double confirmation
The trend reverses smoothly
end
alright
That’s pretty much it for today’s lesson.
In order to facilitate better understanding and memory
I made a summary note for everyone at the end of the film
Today we learned the Regular divergence among the two divergences.
Divergence must not be used alone
It will be better to combine more K-line forms or indicators.
For bearish divergence
K-line prices are constantly creating new higher highs
One wave is higher than the other
The corresponding RSI indicator is creating new lower highs.
At this time, it indicates that the market is changing from strong to weak.
Bearish
Looking for new numbers to enter and prepare to enter the market
For bullish divergence
K-line prices are constantly hitting new lows
A wave is lower than a wave
The corresponding RSI indicator is making higher lows
At this time, it indicates that the market is changing from weak to strong.
bullish
You can click to enlarge
Save the above picture to your phone
When doubting whether it is a divergence in the real offer
You can just flip it out and take a look
As time goes by, you will gradually become more proficient.
RSI divergence is usually formed by the accumulation of a bunch of K lines over time.
So when using this strategy
You need to be patient enough
It will be more reliable when combined with the overbought and oversold strategy.
If applied well
can greatly improve your trading performance
I hope you will always remember one thing
Remember to do risk management every time you trade
Consider how much risk you can and are willing to take
Because no trading strategy is guaranteed to win
Before actually applying it to trading, you can try it out with a simulated position.
Today’s class is almost over here
Remember to follow and forward comments
In case you miss it
Don’t be afraid if you missed the article
The currency circle is changing rapidly
Missing the market is the scariest thing!
I am a panda coach who is good at making complex problems simpler.
See you next time
