How to Trade with RSI - 3 Strategies

[00:01] allow us to create profitable and easy-to-use trading strategies for both beginner and advanced traders. Among all the indicators that exist, the RSI is one of the most famous, as it is one

[00:16] of the best indicators for trading. The problem is that many traders don't know how to use it correctly. For example, it's very common to the RSI to show an overbought or oversold signal

[00:30] before executing short or long positions. The issue is that these types of strategies are as unprofitable as they are basic. This video is a complete trading guide with the RSI, where I will teach you everything you need to

[00:46] know to trade with this indicator in cryptocurrencies, stocks, and forex in the market of your choice. I'm going to talk about what the RSI is, how to use it correctly to analyze a chart, how to configure the RSI, and

[01:01] what the three profitable ways to trade with the RSI are. Also, for a future video, I need you to leave your opinion in the comments. So I recommend that you pay close attention during the video, as a

[01:14] profitable and complete trading strategy with the RSI is based on this information. The RSI depends on

[01:28] in English as Relative Strength Index, and it is an indicator that reacts to market movements, both up and down. These market movements are represented in the RSI by the

[01:42] parameters of 0 and 100. That is, when the market rises aggressively, the market rises aggressively, the RSI will approach 100. When the market falls aggressively, the

[01:56] RSI will approach zero. To add the RSI to TradingView, top left where it says " Indicators" and type "RSI." As you can see, the

[02:12] Relative Strength Index will appear. Click on it, and it will automatically appear on the chart. Normally, the RSI is left with the default setting, that is, an RSI of 14. However, you should know that there are trading strategies that require a

[02:26] specific change to this concept, using a period of seven, which obviously creates consistent signals due to its high frequency. Volatility is a factor, but there are also other strategies with a 50-period setting that, in contrast to the 5-

[02:42] period setting, generate far fewer signals. We'll see this in detail later. However, when we move down the timeframe and approach 10, 5, or 1-minute intervals, due to the high volatility of these timeframes, the RSI will

[02:57] constantly fluctuate between the upper and lower extremes, giving completely contradictory signals. Furthermore, in markets without a clear trend or direction, for example, in range-bound markets, the RSI will continue to generate a

[03:12] in range-bound markets, the RSI will continue to generate a without the market actually reacting in that direction. So, in conclusion, beyond knowing what the RSI is and what

[03:26] configuration we can apply, it's crucial to understand that regardless of the timeframe or trend direction, the RSI will be constantly generating trend direction, the RSI will be constantly generating

[03:39] controlled, as we'll see later, they will confuse any trader, especially beginners. Next, I'll explain the three ways to trade. With the RSI, and regardless

[03:51] of the strategy you're applying, it will fall under one of these three philosophies. So I recommend you pay close attention, firstly because, as is typical in these types of videos, the third method is always the

[04:03] most special, and secondly because, regardless of whether you're already executing a profitable trading strategy with the RSI, I'm sure there are certain concepts you'll be able to acquire and apply to improve that

[04:17] strategy. Furthermore, I've been using the RSI for trading for almost 10 years, so I'm quite familiar with it, and that's why I'm interested in knowing which of the three methods I'm going to explain you like best, since I'll be posting a video with

[04:31] a profitable trading strategy developing that method using the RSI. So, I'll read your comments. Starting with the first and most common of the three is using the RSI as overbought and oversold. That is, we

[04:45] can mark an overbought signal when the RSI goes above the 70 level, and we can mark an oversold signal when the RSI goes below 70. Below the 30 level, use those

[05:00] zones as sell signals if the price is overbought or buy signals if the price is oversold. But here's one of the key points: we must wait for confirmation. Just because the price has reached

[05:13] overbought or oversold levels does n't mean it will react immediately, or even at all. A tip you can follow is to use

[05:26] support or resistance zones when the price is overbought or oversold to decide whether to go long or short, for example, if you look directly at the chart. And this is something that happens with any

[05:39] element inherent to trading or technical analysis. It's clear that a bearish engulfing pattern in no man's land, for example,

[05:51] won't have any impact. It's true that the price falls a little, but it true that the price falls a little, but it continues. A bullish engulfing pattern also in no man's land, for example, ends in nothing;

[06:04] the price rises a little but falls again. A pattern, for example, a head and shoulders, a double top, a... A double top in no man's land that ends in nothing? Well, an overbought or oversold situation in no man's land also

[06:20] ends in nothing. That's why, in this asset, the price kept rising constantly, regardless of the clear overbought condition within the asset itself. But look what happens. Look what happens if I

[06:35] zoom out and mark a support and resistance level. This is a pretty clear area; there are more touches here. Well, look, regardless of the fact that we had already bought over, from this point on,

[06:50] the price had been overbought for 84 days. We didn't react to that overbought condition until we reached a resistance level. And yes, the price makes

[07:02] a false breakout relative to that resistance level, but do you think it's a coincidence that this bearish engulfing pattern here actually ends up forming a clear pullback? The answer is: Don't you think it's a coincidence that the asset

[07:14] coincidence that the asset reacts by forming a pullback? Clearly, at the moment the price reaches overbought, because the situation is clear: it's totally overbought, but it doesn't react to the point we

[07:27] reach. At that resistance level, the answers are no, and the fact is that combining different elements, in this case overbought conditions and resistance levels, overbought conditions and resistance levels, encourages not only avoiding losing out on

[07:41] completely inert positions before reaching that zone, but also the ability to capitalize on a specific movement. A second use of the RSI is to detect divergences with respect to the price. These are moments where the

[07:55] price takes a specific direction, but the RSI takes another, giving a fairly probable signal that at some point the price will return to the direction previously indicated by the RSI. For example, as you can see on the

[08:08] screen, this asset is constantly rising. But there is a moment when the price forms a new upward impulse, clearly surpassing the upward impulse, clearly surpassing the previous high, and yet the RSI

[08:22] has not been able to overcome that upward impulse and has marked a lower high, anticipating a subsequent price correction without any clear signal on the chart itself. But just as

[08:38] with point one, however strong a divergence signal forms, it is not sufficient reason to make a buy or sell decision, since if we look closely, this asset had already been... Marking that signal, since the

[08:53] price had made three higher highs while the RSI had while the RSI had made three lower highs, and it's not until the price reaches a clear resistance level that we can

[09:08] resistance level that we can determine a clear reversal is formed. Paying attention to those divergences that the price had been showing for some time, there are two ways to solve this problem. The first, which we've already

[09:22] seen, is by looking for support and resistance levels (in this case, resistance) so that when the price reaches the same level, we can decide whether to go short or long. In

[09:35] this case, we'll go short. But there's another way that can also be applied. If we go directly to the chart, it's by using breakout levels. That is, we 're clearly seeing a divergence in the RSI, since the price

[09:51] is constantly rising but the RCI is falling. So what we're going to do is falling. So what we're going to do is mark a diagonal line to avoid making a sell decision until the price breaks that diagonal. Obviously, we're going to

[10:05] sacrifice a little bit of the drop, since by the time we execute the position, the price has already fallen 0.89-0.90%. But the reality is that waiting for

[10:17] these types of breakouts to form before making a sell decision is quite effective because you're using a price trend reversal, but not just any reversal. You 're using it right

[10:32] after the RSI is already giving you sell signals. Moving on to the third way to trade with the RSI, in this case, I'm going to explain one that's relatively uncommon, and I'm 100% sure many of you

[10:45] watching this video weren't familiar with it before. What I am sure you do know like the video if you're enjoying it, subscribe if you're not already, and leave a comment telling me what you're seeing and which RSI

[10:59] trading method you prefer. The most voted or most commented on will be chosen to be used for a video with a complete and profitable RSI trading strategy that I've used for several years.

[11:14] pinned comment and in the description of this video. Courses, tutorials, training, and other profitable trading strategies— all 100% free content so you can continue learning as a trader and

[11:28] invest your money. The third way to trade with the RSI is by using the intermediate level, that is, the 50 zone, as a buy or sell signal. When the price breaks out of the

[11:42] intermediate zone from below, a buy signal is given; when the price breaks out of the intermediate zone from above, a sell signal is given. But like all these trading methods, it requires very specific tips and conditions,

[11:55] since we cannot apply this strategy independently of the market phase. We need a trending market. When the market is in a downtrend, for example, the question always arises as to whether the

[12:08] counter-trend movement is merely a pullback before continuing to fall, or if the price will completely reverse. By using the the 50 level of the RSI as a reference, we can determine when

[12:21] the price finishes that pullback to give way to a continuation, and one of the ways to make the RSI even more visual is to give buy and sell signals. Selling in trending movements is achieved by adding a 50-period simple moving average to the

[12:35] indicator itself. This moving average allows the RSI to relate to it, constantly giving buy or sell signals, just like a moving average applied to the price. The reason for using

[12:49] a 50-period moving average and not a 20-period, 10-period, or CCO moving average is simply that we want less volatility. We want to smooth out RSI movements with a moving average that can

[13:04] clearly indicate when the movement might be bullish and when it might be bearish. It's similar to what happens with the MAGDI indicator, which has a MAGDI line and a signal line. The MAGDI line is much more aggressive, and the signal line

[13:18] is a bit more passive, smoothing out these movements. Remember, I want to read your comments to find out which RSI trading method interests you most. The most frequently mentioned method will be

[13:31] chosen for a video with a profitable trading strategy. Also, in description of this video, you'll find other links of interest, such as courses, tutorials, training, profitable trading strategies, and all

[13:46] 100% free content so you can continue learning as a trader without here. I hope you liked it and that it was helpful, which is the subscribe, share with friends and family, and I'll see you in the next video.