Relative Strength Index (RSI) is one of oscillator indicators that has a similarity with other oscillator like Stochastic. It is used to measure market saturation by predicting the overbought and oversold condition. RSI has scales from 0 (zero) to a hundred (100). Different from the situation within the Stochastic indicator, where the overbought happens when the price is above 80 and the oversold happens if the price is below 20, in the RSI, overbought is happening if the price is above 70 and oversold if the price is below 30.
RSI is also different from the Stochastic in term of their aggressiveness. RSI is less aggressive than the Stochastic since it is rarely giving neither buying nor selling signals. If you are an aggressive PAMM trader who likes to do many transactions in your trading, I think this indicator will not be your choice. But if you are a calm trader who doesn’t mind to wait longer for the RSI signals to happen and make transaction, this indicator will fits on you. Because of the rarely signals within the RSI, the long movement will follow the signal once it is happening. In the divergence or convergence, RSI can be used on its own right as an opening signal.While in the sideways condition, RSI is used to determine the reversal point.
For your information, RSI cannot be used in its own. As a PAMM trader, you will also need to combine it with other tools that are able to give you signals such as candlesticks. There are some tips that you can use to anticipate fake signals came from using this indicator. They are:
1. Selling Rules :
First of all, you must ensure that the RSI is in the overbought area and wait until it goes down. Once it’s moving out of the overbought area, you have to make sure there is a bearish candlestick (such as shooting star and hanging man) and wait until it’s stopped. In the beginning of the next candlestick, you may open sell and place a stop-loss above the last swing high, just a little above it.
2. Buying Rules :
Firstly, make sure the RSI is in the oversold area and wait until it goes up. Next, you have to be sure there is a bullish candlestick (such as hammer, inverted hammer, or candle piercing). When the RSI is out of the oversold area, wait until it is stopped. Now, you may open buy in the beginning of the next candlestick and put a stop-loss just a little below the last swing low.
Happy Trading using PAMM investments system !
Don’t forget to read this important article for PAMM trader
1. How to become a PAMM Trader
2. Understanding your Forex Trader Level as PAMM Trader