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Advanced RSI concept

 

Now before we begin this lesson, I hope you guys have read the first part of this lesson
If not READ IT HERE 

 

Now in the previous lesson, we have related working of RSI to the speedometer of the Car.

In this one, we are going to go a step ahead and try to understand advanced concepts and this one is slightly confusing.
So before we start the topic lets imagine the following situation:

Consider you are in a car and heading to a city that is 500 km away and you are on a Highway, the road is clear, and you are driving swiftly at speed above 120 kmph.

Now it’s very normal for a driver to vary the speed, but in a specific range.
A normal driver on a clear highway might vary his speed from 120kmph to 60kmph.
That’s the range on the highway. However of the same car is in a city or traffic congested area, the range of the same car is between 0kmph to 40kmph.
So If I see speed varying in upper band (60kmph – 120kmph) it’s obvious that the road is very clear and similarly if the speed is varying in the lower band (0kmph to 40kmph) the road is full of obstacles.
The exact same concept can be applied to shares and RSI will act as a speedometer.
If the stock is in a clear uptrend (Highway) the RSI will oscillate in upper band (Near 70% zone).
As shown in the figure;

And if stock is in a clear downtrend (Congestion) the RSI will oscillate in a lower band (Near 30% zone)

So Bullish Zone for RSI is 40% to 100%, if RSI is swinging in this range it indicates Bullishness.
Similarly, the bearish zone is 0% to 60%, if RSI is swinging in this range it indicates Bearishness.

This was a simple and yet advanced RSI concept.
In the next part we are going to talk about RSI Divergence :
Read the lesson here 

To understand this concept watch the full video here :

 

Similar Topics :

Exponential Moving Average

Initial Range Breakout Strategy

 

 

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