Trading With RSI Trend Lines Made EASY (Stocks & Forex Trading Strategy)
Articles,  Blog

Trading With RSI Trend Lines Made EASY (Stocks & Forex Trading Strategy)


It is so simple to jump into trading using
the RSI indicator without testing different settings, or educating yourself on the proper
interpretation of this indicator, because of a desire to grab money quickly! As a result, the RSI has become one of the
most widely misused indicators. Once understood and correctly applied, the
RSI has the ability to indicate whether prices are trending, when a market is overbought
or oversold, and the best price to enter or exit a trade. The relative strength index (RSI) it’s a
momentum oscillator that measures the speed and change of price movement. The RSI oscillates between 0 and 100 and it’s
often used to measure overbought and oversold conditions in the market, divergence or it
can be used to identify the general trend. Basically, the RSI is analyzing the total
number of down periods versus the total number of up periods and plots the average on the
RSI curve. There are many different techniques for using
it, but it can be altered depending on your specific needs. An overlooked method of using RSI is the use
of trend lines directly on the oscillator itself in much the same way that they are
used on price charts. Trend lines are one of the most common and
helpful tools in a trader’s kit. They are used to show the price upwards, downwards,
and sometime sideways, movement. Confirmed trend lines are drawn by connecting
a cycle low, or high, with at least two other of the highest or lowest points on a chart,
to create a line of best fit. Connecting rising swing lows of the RSI in
an uptrend or lower swing highs in a downtrend, traders can find trading opportunities with
strong risk to reward setups. Because RSI measures the surge in closing
prices, when RSI changes direction and either breaks above or below a trend line, a significant
move in price can result. So, we’ll use the RSI indicator to show
us if the prevailing trend has ended and a new trend is underway. We’re not going to measure the overbought/oversold
conditions or as a crossover system, we’re going to take it one step further and look
for a break in momentum of the prevailing trend. What I mean by this is that we’re going
to look at the changes in prices relative to the changes in the peak and the valley
that the RSI indicator will generate. Trend lines placed on this oscillator provide
an additional level of precision as well as additional trade setups. Because the signals are leading rather than
lagging, stops can be placed relatively close to the entry point. This allows for a good risk to reward trading
opportunity. The RSI-trend line approach works best on
higher timeframes but it can be used on any time frame, for day trading for example. The rules of this technique are straightforward,
we only need to connect the most recent RSI peaks or valleys with a trend line and we
search for a breakout of the trend line, which will warn us that the market has lost its
steam and the prevailing trend has lost its momentum. There is one more condition that needs to
be satisfied in order to enter a trade, we need for the price to still be trading below
its trend line, so we’ll need the RSI trend line to be broken, and the price to be trading
below its trend line. This is the most important principle in order
for the RSI-trend line strategy to work because it tells us there is also a divergence between
momentum and price. Momentum always goes ahead of price and that’s
the reason why this strategy can yield a great return. The breaking of an RSI trend line usually
precedes the break of a trend line on the price chart, providing an advance warning
of a reversal. Therefore, recognizing the break of the RSI
trend line can be an important and profitable indicator that the price direction is about
to change. This is a leading signal. a leading signal appears before the new trend
or reversal occurs. RSI, in its nature, is a lagging indicator. Lagging indicators only give signals after
the price change is clearly forming a trend. The downside is that you’d be a little late
in entering a position. Often the biggest gains of a trend occur in
the first few bars, so by using a lagging indicator you could potentially miss out on
much of the profit. That’s, when trading the RSI trend line
breakout, you’ll get leading signals. Now you’re probably saying to yourself,
“Oh, I’m going to get rich with leading indicators!” Since you would be able to profit from a new
trend right at the start. You’re right. You would “catch” the entire trend every
single time if the leading indicator was correct every single time. But it won’t be. When you use leading indicators, you will
experience a lot of fakeouts. That’s why it’s important to look closely
at the price action. If you would take a trade every time you spot
a RSI trend line breakout, you would soon find out that the outcome is not as expected. The RSI trend line has leading qualities,
but after all it’s still an indicator. You need to analyze the price. You need to draw key support and resistance
levels, to identify the trend and take RSI trend lines in the direction of the main trend. Here is a common mistake. Many traders that implement the RSI trend
line breakout approach, use it as a reversal signal. They see an upward trend, they spot a RSI
trend line breakout and go short. This could work, yes, but it’s not the most
consistent way of using it. I use it in a more conservative way. When I spot the same uptrend, i search for
RSI trend line signals that offer buy opportunities. I have zero interest in RSI signals indicating
short trades. I go with the main trend. In GBPUSD chart, we noticed some RSI trend
line breaks. The use of the trend line provided additional
visual confirmation that a trade opportunity is near. The use of trend line breaks gave buy signals
a few candles before the actual move. In this another chart, we can have a representation
of how a short setup would look like. We have the price making lower lows and lower
high, so we are definitely in a downtrend. We added the main support and resistance levels. Then we identified the RSI trend line breakouts. In terms of stop loss level, a common practice
is to use the candle on which the RSI broke its trend line, so in the case of our short
setup our SL would be above that candle. In real time trading, this isn’t best practice. That’s why I rely on recent market swings. I aim to place my stop loss above an important
swing. If you prefer a better visualization of the
trend, add a long term moving average, and take trades in its main direction. Here are other examples of RSI trend line
trades. Regarding the settings, or better said, the
period of RSI. RSI like many other oscillators is defaulted
to a 14 period setting. This means the indicator looks back 14 bars
on whatever graph you may be viewing, to create its reading. Even though 14 is the default period, that
may not make it the best setting for your trading. Normally short-term traders use a smaller
period, such as a nine period RSI, to replicate shorter term movements in the market. Longer-term traders may opt for a higher period,
such as a 21 period RSI or even 50. Depending on your trading style, you can lower
your RSI to increase sensitivity or you could raise it to decrease sensitivity. Keep in mind that on lower timeframes, with
lower RSI settings, you will get a lot of false signals, because the indicator will
have increased sensitivity. So, maybe it’s better to increase the value
of the RSI if you want to back test this technique on smaller timeframes. If you want a smoother analysis, with less
noise, go on higher timeframes. Here you could use a lower period on the RSI,
which will offer more trend line opportunities, but you could also adopt a less sensitive
approach, by using a higher period RSI, like the 21 for example. The key is to back test and find the best
approach that works with your trading style. The RSI is a powerful tool that can offer
a great assistance on when to buy and when to sell. Sometimes it can also predict the trend other
indicators are too slow to acknowledge. An important tip is that you shouldn’t chase
the trades, let them come to you. RSI is an indicator and just follow the price. You should be patient and wait for a clear
break of its trend line. Maybe sometimes, you should wait to see how
the first candle acts after the breakout and after that take your trade. If you got any value from this and learned
something new, leave us a like to show your support. Also don’t forget to subscribe and click
the bell icon to stay in touch with new uploads. Until next time.

49 Comments

  • The Secret Mindset

    If you learned something new, make sure you Subscribe & Like this video (it only takes 5 seconds but will help us a lot)

    ▶ Ready for some TRADING and INVESTING action?

    https://thesecretmindset.com/academy/

  • Krishnam Raju A

    Hi, am a beginner, How do we approach a trading day, what basis do we filter stocks for the next day's trading

  • prism5

    As usual, excellent video bro 👍🙏 But how about using, MFI or OBV indicator instead of RSI… because RSI do not include volume, but These indicators have….. which one you recommend most among RSI, MFI, and OBV to use trendline drawing strategy

  • Awais khan

    Thank u soo much brother, I've learned too much from this channel and many different thing no one talks about it,,…. keep doing

  • Jones Walter

    This was quite educative but self trading is just as good as throwing funds away just trying, let a professional trade for you while you learn and make money at the same time.I recommend John Lord as the best choice his tactics and qualities as a trader are commendable and I trust him

  • YoungStrongAndCrazy

    Been watching your videos for a few months now and I finished them all. But I still can't put together 2 or 3 indicators for day trading (4h,1h,15m) that really work well together. Is it possible to get in touch with you to talk these things out?

  • Pritesh Tirlotkar

    This is really amazing! Tried to back test manually on few of the charts. Such a simple though yet powerful.

  • Jaymar The Designa

    This is GOLD!! With it I can also predict the take profit TOO!! Works best on higher timeframes, H1, 4H and D1.

  • geoff young

    Never been a fan of the RSI, recently though I've been using it with Renko charts.

    The RSI seems to be a lot more powerful and accurate and its shaped differently.

    Good video as always!

  • Michael Mansfield

    Just to let you know, your arrows, especially around eight minute mark, are way off, at least from where the RSI crossed above it's trend-line for each signal. Now if you meant that's where you entered because you're waiting for a price trend-line break, and maybe that is the case, but you didn't show the price trend lines just the RSI trend-lines. Perhaps a better strategy would use a volatility break out of about three to four bars ATR, such that:
    Buy above signal bar (High + ATR(3)) x 0.25, stop to open. End. I would never want to buy so late as waiting for the breakout of price trend-line. On virtually every price breakout, RSI would have already experienced a break out. Thus, the signal is likely only a price breakout, with the RSI being redundant. So you may be missing the boat on profitability and lower risk trades, by waiting for the price trend line break out, IMHO. MM

  • Ray smith

    Hello, I am new to Forex and really need more information, I have lost a lot of money on Forex recently and I see a lot of people earn from it. Can anyone tell me what i am doing wrong.

  • Cheryl Davidson

    Hey, I am new to Forex and really need more information, I have lost a lot of money on Forex starting late and I see numerous people obtain from it. Would anybody have the option to make reference to me what I am messing up.

  • Pradeep Kumar Moghe

    Hi !, May I request you to kindly speak slowly and louder. I am finding it difficult to catch up your fast speaking. Also please can you reduce background music noise. Thanks.

  • cynthia Deg

    I'm no expert. Some people treat CCI similarly to RSI. In that regard, I notice that, as a swing trader, if I find CCI/14 at 190 to 200, it is usually NOT a reversal to low side if the following rule is met: it must be the FIRST time the CCI reaches about 200 on a daily candle after consolidation (and better if the candle also breaks previous resistance and popping up BB squeeze), it is actually a buy signal. It just keeps riding the upper Bolinger band. Sometimes the CCI will continue over 200 for a candle or maybe two (rarely). The trick is to buy on the first candle because the next day, the price is already up. I recorded 80 instances from my TC2000 scan the other day and discovered that only 20 of them out of 80 went down or flat. So thank you for this new look at RSI, which I never believed was a signal of "overbought." In fact, I don't believe there is any such thing as overbought. Tell that to the folks who bought TSLA at 300 bucks, right? Thanks again. you have a new sub
    just a few examples:
    OCUL 11/29/19 DRD 12/24/19
    GLOW 2/26/20 XENE 11/25/19 beautiful!
    DYNT 2/27/20
    BLU 12/30/19
    RUN 1/16/19 and 2/5/20. There are probably thousands of examples.
    I don't count gap ups on the day because they're so hard to trade. Don't trust the initial crazyness. I'm just talking about "regular" price movement. Another exception is like RUHN on 1/2/20. The candle was way too big. It doesn't matter to me that it broke resistance. Big candles are more risky than small ones. Of course it went down next day. I will admit PEIX did have the CCI over 200 after a gap up on 12/17/19 and it DID rally after, but I think those are just more risky due to gap up. Plus, I'm a beginner who probably doesn't know what I'm talking about. Cheers

  • spliffzombonie

    ALL indicators are lagging. Heck, even all charts are lagging. These are all late info compared to what's already happened.

  • Raven Mamba

    what is great to have a mentor that been verified by others and have a testimonial or just to do it by my self and keep on learning?

  • rick byron

    Thank you so much brother! Just wanted to know, can you use the trendline breakout strategy using OBV instead? Because the RSI in some of my stocks do not establish a clear pattern/trendline. Will using OBV in this trendline breakout strategy still be accurate/reliable? Thanks for your time!

Leave a Reply

Your email address will not be published. Required fields are marked *