How to Use RSI for Intraday Trading

how to use rsi for day trading

The Relative Strength Indicator (RSI) is a potent day trading tool for finding intraday setups. 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.

  • There are times when the ranges are so tight you might get an extreme reading.
  • If the stock beings to demonstrate trouble at the divergence zone, look to tighten your stop or close the position.
  • Periods with price losses are counted as zero in the calculations of average gain.
  • The RSI is popular among the trading community, especially day traders, as it gives you an idea of future price trends.
  • In this relative strength index example, the green circles show the moments where we receive entry signals from both indicators.

That means that it’s priced above where it should be, according to practitioners of either technical analysis or fundamental analysis. Traders who see indications that a security is overbought may expect a price correction or trend reversal. RSI is one of the most commonly and popularly used forex indicators for intraday traders.

Losing Trade

These guidelines can help traders determine trend strength and spot potential reversals. For example, if the RSI can’t reach 70 on a number of consecutive price swings during an uptrend, but then drops below 30, the trend has weakened and could be reversing lower. Generally, when the RSI indicator crosses 30 on the RSI chart, it is a bullish sign and when it crosses 70, it is a bearish sign. Put another way, one can interpret that RSI values of 70 or above indicate that a security is becoming overbought or overvalued.

On the RSI oscillator, the 60 line indicates overbought, and 40 is oversold. When the indicator is above 60 enter a short trade and when the indicator drops below 40 and enter a long trade. Just like with any other indicator, you should be using other indicators and technical analysis to confirm signals. It is a momentum oscillator that shows you the strength of a given trend through its overbought and oversold levels. Before you start trading with our entry signal, we will cover a few key tips to help improve your trading.

Finding RSI Indicator Settings

Adjust the settings in line with your trading strategy, which could be using 7 or 10 periods for day trading. The RSI can be applied to different timeframes and time periods, with the standard setting being 14 periods, although traders may customise. For example, RSI settings for daytrading are typically on a shorter lookback, such as 7 or 10 periods, to increase sensitivity to recent price changes. The RSI indicator is a useful tool for traders and can lead to profitable strategies.

It can also indicate securities that may be primed for a trend reversal or corrective pullback in price. Traditionally, an RSI reading of 70 or above indicates an overbought situation. You can trade with RSI trendlines by connecting the highest and lowest price levels on the trading chart. Draw an RSI uptrend by connecting three or more highs on the RSI line.

How can I improve my RSI trading strategy?

However, if you use a slower platform, you should place your entry order about one minute before the 15-minute bar that triggered the trade closes. I placed a market order roughly 10 seconds before the 15-minute bar came to the end and closed. If you have used a direct access platform with ultra-fast execution, you should be able to do the same. Once the RSI rallied above 80, I began monitoring the stock and waited for the 15-minute bar to end. Make sure you track stocks that aren’t going through a price consolidation or triangle type of pattern.

  • The basic idea behind the RSI is to measure how quickly traders are bidding the price of the security up or down.
  • The more time you give the trade to work, the higher the odds it moves further in your direction.
  • Unfortunately, the two indicators are not saying the same thing, so we stay out of the market.
  • Areas of congestion are useful for finding support and resistance zones.
  • The standard setting is 14 periods, but some traders can use custom RSI indicator settings like two periods, nine periods or 50 periods.
  • These support and resistance lines can come in the form of horizontal zones, or as we will illustrate shortly, sloping trendlines.

The first thing you need to do is adjust your chart’s time frame to 15 minutes and change the RSI settings from 14 to 10. In a nutshell, I simply change the look back period from 14 bars to 10. This makes the RSI more dynamic for short-term price swings that occur when actively getting in and out of the market. An RSI score how to use rsi for day trading below 30 can be interpreted to mean the security in question is oversold. To enter a trade, you will need an RSI signal plus a price action signal – candle pattern, chart pattern or breakout. The goal is to hold every trade until a contrary RSI signal presents, or price movement confirms that the move is over.

Welles Wilder, is a momentum oscillator that measures the speed and change of price movements. As we have already discussed, if the RSI indicator shows an asset has become overbought and then starts to point lower, it suggests the price might follow it downwards. Likewise, if RSI is oversold and then starts to point higher, the price could be about to turn higher too.

how to use rsi for day trading

The average gain or loss used in this calculation is the average percentage gain or loss during a look-back period. Periods with price losses are counted as zero in the calculations of average gain. Periods with price increases are counted as zero in the calculations of average loss.The standard number of periods used to calculate the initial RSI value is 14. For example, imagine the market closed higher seven out of the past 14 days with an initial average gain of 1%. The remaining seven days all closed lower with an initial average loss of −0.8%. Divergence refers to a change in the current price movement in the forex market.

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. The RSI is a versatile and potent tool for day traders, offering valuable insights into market conditions and potential trading opportunities. However, successful trading involves a comprehensive strategy that combines various technical indicators and risk management techniques. Ultimately, each trader should aim to develop a strategy that suits their unique trading goals and risk tolerance.

how to use rsi for day trading


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