3 Trading Strategies using RSI indicator

 Relative Strength Index (RSI) is a momentum indicator that is used by technical analyst to measure the speed and change of price movements. Developed by J. Willes Wilder jr. in 1978, RSI is one the most popular indicators used by traders across the world.

In this post you would learn three strategies with RSI that can be used for making profitable trades. I personally use the third strategy quite often and it is one of the strategies that has worked wonders for me.

1) Trading strategy with RSI and Bollinger Band-  Trade setup-

a) Look for stocks whose price is touching or below the lower band of Bollinger Band            and additionally RSI is below 30.

b) Buy the stock once the price starts to move above lower Bollinger Band and RSI                    moves  above 30.

c) Put Stop-loss just below lower band of Bollinger band.

       d) Exit when price touches the upper band of Bollinger Band or use trailing stop-loss.

2) Trading Strategy with RSI divergences-  Trade setup-

 a) Identify a stock  in downtrend and is showing Price RSI divergence. A bullish Price RSI  divergence occur when price makes a new low and RSI makes a higher low.                         

 b) Buy a stock showing bullish divergence once the stock price crosses above             nearest resistance level.

       c) Put stop-loss at swing low.

       d) Exit once stock hits the next resistance level or Use trailing stop loss.

3) Trading Strategy using RSI and 200 EMA-    Trade setup-

a) Look for stocks whose 200 EMA is inclined upwards. This tells us that the stock is in uptrend.

b)Look for buy opportunities once the RSI moves above 50 from below.

c) Put Stop-loss at swing low.

d) Use trailing stop loss to exit the trade.

Further reading-

- Test of global market efficiency, through momentum, oscillation, and relative strength index strategies by FST Chu

- Relative strength as a criterion for investment selection by R A Levy