Power up Your Trades: How to Use RSI for Breakout Day Trading

how to use rsi for day trading

It is important to understand that past performance is not necessarily indicative of future results; thus, investors must be aware that their investments could potentially lose value. The RSI indicator is arguably one of the most important indicators you can use on the market. It can do all sorts of things, such as tell you the momentum of a stock’s price and tell whether or not that stock is overbought or oversold. All this, of course, can help you make better investment decisions.

Start trading with our platform today and use the RSI indicator independently or combine it with other indicators. Most importantly, traders new to the RSI indicator should test RSI trading strategies using paper trades, or trading simulators, on the trading platform. By combining technicals with an understanding of the movement of the broader market, how to use rsi for day trading traders improve their opportunities to hit a home run with their trades. Another commonly used momentum indicator, the moving average convergence divergence, can be utilized in conjunction with the RSI to help corroborate the validity of RSI signals. Risk DisclaimerTrading comes with inherent risks due to the unpredictable nature of the market.

RSI and the Broad Market

Some intraday traders solve this issue by lowering the time-frame

or opting for a sensitive oscillator with a lower period which has risks of its own. RSI mainly suggests the primary trend of a stock

or an asset which further aid in comprehending whether the same financial instrument is “oversold” https://www.bigshotrading.info/ or “overbought”. By combining both types of analysis together, you’ll be able to make well-informed decisions about which trades to take and when. With practice and patience, you’ll soon become an expert at reading the markets and taking advantage of lucrative opportunities when they arise.

how to use rsi for day trading

A nine-day EMA of the MACD called the “signal line” is then plotted on top of the MACD line, which can function as a trigger for buy and sell signals. Traders may buy the security when the MACD crosses above its signal line and sell or short the security when the MACD crosses below the signal line. Areas of congestion are useful for finding support and resistance zones.

Applying RSI for day trading

Its purpose is to smooth the results so that the RSI only nears 100 or zero in a strongly trending market. As you can see, the pair is rising while the RSI is in an overall bearish trend. As such, there is a high probability that the price will have a bearish breakout in due course. It does this by measurin the level of the RSI relative to its high-low range in a period. It achieves this by applying the stochastics formular to the RSI values. RSI is also great in crypto for figuring out bottoms and tops (use long term 1 day or 1 month timeframe candles).

how to use rsi for day trading

We have developed the Rule Trading Strategy that uses the RSI indicator. It involves price action analysis, which will help you land great trade entries! This RSI trading strategy is as useful as the RSI 2 trading strategy, which was developed by Larry Connor [1]. However, this strategy strictly trades reversals that occur in the last 50 candles. We will buy or sell the stock when we match an RSI overbought or oversold signal with a supportive crossover of the moving averages. On that token, we will hold the position until we get the opposite signal from one of the two indicators or divergence on the chart.