The main purpose of RSI
It mainly shows whether the market is overbought and oversold. Due to the limitation of the calculation formula, RSI must be between 0 and 100, 50 is the equilibrium point, and 30 to 70 is the normal trading state
There are generally three ways to use RSI indicators:
- Absolute size method
When RSI>80, it belongs to the overbought state, and the subsequent market may have a callback or turnaround. It is recommended that the stocks should be sold in batches; especially when an M head or head and shoulders pattern is formed at this time, it is regarded as a downward trend. Turn signal
When RSI>90, it is seriously overbought, and the stock price is likely to retreat in a short period of time. It is recommended to sell immediately;
RSI takes 50 as the middle line, more than 50 is regarded as a long market, and less than 50 is regarded as a short market;
When RSI<20, it is oversold and the short-term rebound probability is high. It is recommended to buy stocks in batches; especially when a W bottom or head and shoulders bottom is formed at this time, it is regarded as an upward reversal signal
When RSI<10, it is a serious oversold state, and the stock price may have a chance to stop falling and rebound at any time, which is a good time for investors to enter the market
However, RSI can only be used as a warning of overbought or oversold, not necessarily a signal to enter the market. In a big bull market or a big bear market, both overbought and oversold can stay for a period of time. Never see that the RSI is lower than 20 or greater than 80 and immediately take action to buy or sell, otherwise it will only fall into the trap of RSI in.
- Golden Chasing Method
When the short-term RSI crosses the long-term RSI from bottom to top, a golden cross is formed, which is a buy signal; when the short-term RSI crosses the long-term RSI from top to bottom, a dead cross is formed, which is a sell signal.
- Top-bottom deviation method
When the stock price on the K-line chart rises to new highs time and time again, and after the RSI hits a recent new high, it has formed a trend that is lower than once, which is the top divergence. Top divergence is a signal that the stock price is about to reverse at a high level, and you can consider selling.
When the stock price on the K-line chart goes out of new lows time and time again, and after the RSI hits a recent low, it has formed a trend that is higher than once. This is the bottom divergence. The bottom divergence phenomenon is generally a signal that the stock price is about to reverse at a low level, and you can consider buying.
Tips for using rsi indicators
When a stock undergoes a deep adjustment from a high position, the RSI index drops from a high position above 80 to below 50, from strong to weak, and short-term purchases are not possible at this time. When the RSI enters the high area from the low area below 50 to the high area for the first time, it proves that the stock has begun to enter the strong area. At this time, there are funds to operate the stock, and investors can include the stock in their self-selected stocks. Follow-up tracking. When the RSI pulls back, you can intervene in time if the stock price does not break the 20-day moving average (universal moving average). This is a way to use the RSI strength indicator to capture short-term profits of strong stocks, make a difference, and then leave.
When a stock is adjusted from high to low (relatively low), when the rsi rises to 75-80 for the first time, the trading volume must increase; when the rsi indicator drops again, the trading volume must decrease;
The rsi indicator fluctuates up and down, with lows gradually rising (generally defined as RSI>20 ~ 35). At this time, it constitutes a support line for rising. If the high point gradually decreases (RSI generally <80 ~ 65), then it constitutes a pressure line. Below the support line is a sell signal, and above the pressure line is a buy signal.
When the rsi indicator of individual stocks and the K-line trend of individual stocks are clearly differentiated (the K-line of stock prices is rising, but the rsi indicator shows that the highs continue to decrease), investors use the drawing tool to move between the two highs. Draw a line. When the RSI line is close to the line again and cannot be broken, then investors should leave the market immediately without hesitation.
The RSI indicator reflects the strength of the stock price rise, the enthusiasm of investors for the most stocks, and the overbought and oversold conditions; and the trading volume of individual stocks is the driving force for the rise or fall of the stock price. Investors combine these two indicators to analyze whether a stock is currently overbought or oversold and make timely trading decisions. This is a powerful combination indicator for stock investment analysis.
The combination of RSI indicator and trading volume skills: After the stock price rises, the trading volume of individual stocks increases, but the rsi indicator of individual stocks shows a situation where the top of the rsi indicator continues to fall, indicating that short-term stock prices will fall, and investors who bought in the early stage can be appropriate To lighten up their positions at high positions, investors who had short positions in the previous period should not buy again.
When the stock price drops and fluctuates at the bottom, if the K-line pattern of individual stocks is already at the bottom at this time, the RSI indicator also fluctuates at the bottom and forms multiple bottoms, indicating that the current bottom is very stable. Correspondingly, the trading volume of individual stocks will also shrink.