Which of the following is thought to be the correct way of using
RSI
My belief is for RSI when it is below 20 it is a buy signal and when above 80 it is a sell signal
However there is also the 50 line crossover, where some believe a long signal is created when RSI move from below 50 to above 50 and the opposite for a short
Which is correct or which has a higher percentage success rate.
Stochastics
Very similar differences, i believe a buy signal is set when fast crosses slow upwards when in oversold territory, and a sell when it crosses down in overbought territory.
Some however trade again using the 50 line as a giude and when crossing over 50 its lon and below 50 its short.
Hey - I replied to this post last night - now my post is gone! Did I say something wrong? If so - then whoever deleted the post could at least tell my why!
Hello - I’m not SURE that it was removed - but I do know that it seems to just have dissapeared - I mean - there was nothing controversial in it at all.
Anyway - it went something like this:
I started by saying that I don’t know how long you have been at this i.e. are you a new or seasoned trader?
If you are a seasoned trader then I’m sure I don’t have to tell you that using either of these indicators on their own is bad news.
Having said that I have come across one or two ‘systems’ that draw a line across the middle of RSI and the idea is that you take every trade when RSI goes above (or below) this line in the opposite direction of the trend and then cross the line back in the direction of the trend i.e. the crossing of the 50 index line (or whatever you want to call it - actually I think one of these uses a value of -50 but cannot remember which). The theory behind these systems is that nothing ever goes up and up and up but up and up then down then up again and so on and so forth. Basically the crossing of the line indicates a strong buy or sell signal. The problem with these systems is that you can get whipsawed out quite easily and you miss a lot of the trade but that’s just my opinion.
The reason I say not to use either of these indicators on their own (which goes for all of the indicators I firmly believe) is because you will find that with both of them the fact that they are at their extremes i.e. either above 20 (or -20) or below 80 (or -80) is not confirmation enough for me to enter or exit trades.
RSI and / or Stochastics can be at their extremes and the way I understood it at first was that you go long or short when they started crossing these lines (and with Stochastics when the %K crossed %D or something like that). I tried this in the beginning and lost good and solid. The reason being is that both of these indicators could cross over these lines and then just as soon cross back up again and stay there for ages and while they just stay there for this period the price is actually going up an up or down and down and they are not moving any further i.e. can’t go past 100 (or -100) or 0. What does this mean? Well you could have entered a position and by the time Stochastics and / or RSI do turn and cross the lines the price could have moved so far in the wrong direction that you would never recover the position.
I just read your post again - maybe my post ‘dissapeared’ because I’m not really answering your question - or am I?
Put it this way:
RSI
My belief is for RSI when it is below 20 it is a buy signal and when above 80 it is a sell signal
Let’s say you took a long position when RSI was below 20. It has crossed to below 20 for the simple reason that the price was going down and is now expected to go up BUT the price could continue to move down until the cows come home and RSI would still be giving you a buy signal. The price might go down so far that either your stop loss would be hit (hopefully) or your account would get wiped out.
Same with Stochastics I believe.
It is true though - I have checked - that the longer these indicators stay at their extremes the stronger the reversal will be - that is true. Using these indicators on their own to get buy or sell signals is not something I would do - but that’s just me!
And if someone deleted this post then at least please just tell me why? Am I talking absolute drivel or what? You know - something like that!
I am a new trader , so this is some of my thought on your question.
I agreed with what dale have said. RSI or Stoch is just an indicator to tell you that it is a possible reversal ( if the extreme is cross) , but you will need to look for other information ( maybe other indicators , or fib level ) to confirm the trend change.
The higher the time frame , the more reliable is the RSI or Stoch. ( compare the RSI movement for hourly and daily chart )
I have post a chart , just imagine you decided to go long on 12 Jun 12:00 becauase RIS has cross from below 20 to 26.15 … ( I think this is what dale explain in a visualise format )
Conclusion, I believe RSI or Stoch or any other indicator has it own good and bad, but it is dangerous to use only one indicator to generate buy or sell signal.
Many thanks for the very useful replys, i certainly dont look to individual indicators for trade entries/exits but look for confirmation between a few (leading and lagging).
I just want to be sure im using the signals/indicators correctly, back to testing
:o
Possibly when you clicked “submit reply” you may not have clicked your mouse properly. The mouse could have made a click sound but did not electronically click thro.
If such is the case then you could consider replacing your mouse. I speak here form personal experience with this problem.
It becomes serious when you enter a trade - the mouse click does not get you into your desired trade! :mad:
Kind regards, Tymen Wortel, Perth, Western Australia.
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