RSI curve pattern trading method:
The various patterns that appear when the RSI indicator is consolidating at a high level or sideways at a low level are also an analysis method to judge the market and determine the buying and selling actions.
- When the RSI curve is at a high level (above 50) to form a high reversal pattern such as M head or triple top, it means that the upward momentum of the price has exhausted, and the price may have a long-term reversal market. Investors should sell short in time . If the price trend curve also has the same pattern, it can be more confirmed. The magnitude and process of the exchange rate decline can be judged by referring to the top reversal pattern such as M head or triple top.
- When the RSI curve forms a low-end reversal pattern such as a W-bottom or triple bottom at a low level (below 50), it means that the downward momentum of the price has weakened, and the exchange rate may build a mid-to-long-term bottom. Investors can open positions in batches on dips. If the exchange rate trend curve also appears the same pattern one after another, it can be more confirmed. The increase rate and process of the exchange rate can refer to the research of the bottom reversal pattern such as W bottom or triple bottom.
- The accuracy of the reverse pattern at the top of the RSI curve is higher than the bottom pattern
Deviation of RSI curve
The divergence of the RSI indicator means that the trend of the RSI indicator’s curve is exactly the opposite of the direction of the exchange rate chart. The divergence of the RSI indicator is divided into top divergence and bottom divergence.
When the RSI is at a high level, but after creating a recent RSI high, it has formed a trend that is lower than a peak. At this time, the exchange rate on the K-line chart has once again hit a new high, forming a trend that is higher than a peak. This is the top deviation. . The divergence phenomenon is generally a signal that the exchange rate is about to reverse at a high level, indicating that the exchange rate is about to fall in the short term, and is a signal to sell. In the actual trend, the RSI indicator’s top and bottom deviations mean that the stock price first created a high point during the pull-up process, and the RSI indicator also correspondingly created a new high above 80. Afterwards, the exchange rate fell back to a certain extent. As a result, the RSI also adjusted as the exchange rate fell. However, if the exchange rate rises again and surpasses the previous high to create a new high, and the RSI reverses upward with the exchange rate rising but begins to fall without surpassing the previous high, this forms a top deviation of the RSI indicator. After the RSI shows a divergence, the exchange rate is likely to peak and fall, which is a strong signal to sell short.
- Bottom divergence
RSI’s bottom divergence generally appears in the low zone below 20. When the K-line chart fell all the way, a wave of lower than a wave formed, and the RSI line took the lead in stopping the decline at a low level and stabilized, and formed a trend of higher than the bottom, which is the bottom divergence. Bottom divergence generally indicates that the exchange rate may rebound in the short term, which is a sign of short-term buying.
Similar to the divergence of the MACD and RSI indicators, the accuracy of the divergence of the top deviation is higher than that of the bottom deviation. When the exchange rate is at a high level and the RSI is above 80, there is a top divergence. It can be considered that the exchange rate is about to reverse and investors can sell short in time; and when the exchange rate is at a low level and the RSI is also at a low divergence, it usually needs to repeat several times. Bottom divergence can be confirmed, and investors can only make strategic positions or short-term investments.