Most beginner traders usually wonder about what RSI indicator buy and sell signals are? When and how they are generated and how is it helpful for traders?
If you are already a trader then you might be aware of the situation where a stock after gaining positive momentum starts losing it and prices start falling. Similarly, a negative momentum comes to an end when the bulls become active again.
But here is the biggest question, how a trader will know about this momentum in advance?
For this, one can rely on the RSI or Relative Strength Index indicator that oscillates between 0-100 and gives an indication of market momentum.
RSI indicator buys and sell signals are accurate to much extent hence useful for the trader who wants to trade by taking different positions in the stock trading.
In this blog, we will understand how to trade using this indicator and when to take a buying and selling decision just by looking at the indicator.
How to Trade with RSI Indicator?
RSI or Relative Strength Indicator is one of the intraday trading indicators. It is a momentum indicator measuring the change in the magnitude of price with time.
In simple terms, it tells when buyers are more active in trade and when sellers are dominating the market.
Wondering why it is important?
The high volume of buyers i.e. more demand increases the stock prices but at one point when there are more buyers than sellers. At this point the stock prices start losing momentum, generating the signal of trend reversal and vice versa.
Here if you are looking forward to gaining an understanding of how to trade using the indicator, then all you have to do is add it to the chart and analyze its reading.
RSI value above 70 generally depicts an overbought situation and hence if the stock is in an uptrend, then there are chances that the prices will start to decrease soon.
On the other hand, the value of 30 gives information on oversold conditions and the chances for traders to look for the right price to take a long position.
This reading changes to 40-90 or 20-80 or 20-90 in Intraday trading because of a more volatile market where the RSI touches 30 and 70 on a more frequent basis.
It is also imperative to mention volume while talking about an RSI indicator. The volume, If the green bars of volume increase along with RSI (above 50 and 70) then it gives a strong bullish signal and hence a confirmation point for traders to take a long position.
Similarly, we see Red bars increasing when the RSI moves into the oversold zone. Thus, one can either short or close their position to avoid any further losses.
Let’s dive into detail to know when to buy and sell using the RSI indicator.
What is a Good RSI to buy?
There are a couple of RSI points that are considered suitable for buying. When RSI is below 30 and its value starts increasing above 30, then is the point to take a long position.
However, it can turn out to be a risky move as the bullish trend can reverse as well. The bullish trend is confirmed to sustain itself and get stronger only when the RSI crosses the mean position of 50 from below. At this point, you should definitely buy.
Again for Intraday trading, the overbought, oversold, and mean positions change as per convenience.
What is a Good RSI to Sell?
Similar to the buying signal, the indicator generates a selling signal.
So, if you are the one who wants to close your position or are interested in doing shorting in the bearish market condition then look at the price corresponding to the RSI value when it crosses RSI 50 from above.
It means that when the RSI value starts declining and falls below 50, it generates strong selling signals.
Similarly when the RSI value is above 70 and consolidates in the above range, then one can take a selling signal because it is the point from where the trend reversal might take place.
You can get a confirmation for the same when the value starts declining and drops beyond 70.
These are certain points that give you a selling signal using the RSI indicator.
Conclusion
The RSI indicator buy and sell signals are very productive and reliable indicators for traders. Additionally, using and interpreting this indicator takes minimum effort and with its flexibility, it turns out to be a popular choice among traders.
You can use it with other indicators to generate more powerful signals. Know the list of best indicators with RSI and trade like a PRO!
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