I saw many traders use RSI to produce signal but there are also some confusion about of the use of RSI in traders. Can you please tell me how to use this indicator properly?
Study the >= 80 and <= 20 lines for signal generation. It can also generate wrong signals. It therefore should be used together with other such indicators/oscillators like BollingerBands and MACD. Just try it out here ; https://finance.yahoo.com/quote/SHO...OYW1lIjoi4oCMbWFjZOKAjCAoMTIsMjYsOSkifX19fQ-- You can get more help in the Technical Analysis forum here: https://www.elitetrader.com/et/forums/technical-analysis.33/
It is one of those indicators contrarians like. Overbought-Oversold, so therefore looking for a snap back. But the problem is straight forward. Things are overbought-sold BECAUSE they are being sold or bought. So just "following it" will give you a bunch of longs that are short lived (dead-cat) bounces and then good chances of continuations or at least retests (thereby running stops at the short term low). The extreme ones, over-under XYZ amounts, are the best and the worse. They are when you have an actual trend, and a high potential for a reversal. Reverse for shorts, but with different momentum characteristics. To use it, you need 0) a larger context in addition. 1) you need a trend that is ending, or not even a trend but a whipsaw reversal 2) you need to adjust your entry and exits for either a dead cat bounce or to let it run. I.e. entry exits need to be variable based on the strength. One size does not fit all. 3) tactics to deal with retraces. Overall, just one indicator that needs about 2-4 additional indicators to filter out the false signals. When you get the right combination, then you will realize RSI is redundant and probably one of the least useful for the amount of analysis and filtering. PS: How not to use it: It is a bad idea to take an "RSI" based trade, get a profit, then go negative, and then wait for the RSI to go again in your favor. Basically you will just be riding a wave that is against you. To high risk and MAE for the possible gains. The trade is out of sync with the market.
It says it was printed in the year 1656 Q: What's the correct year? 1986? A: It says "(2004-05-01)" OP should look also here: https://en.wikipedia.org/wiki/Relative_strength_index
Oscillators (like RSI) can be used for divergence also. https://www.tradingheroes.com/rsi-divergence-explained/
On an intraday 5 minute chart if I see at least 5 green candles in a row with an RSI over 90 and the price starts bumping into resistance on a larger time frame I start thinking about shorting on the next red candle with a stop loss just above the highest green candle. Got a good easy short on ETSY on February 1st around 8:30 am in pre-market. There was news about some guy getting appointed to the board of directors which in my opinion didn't justify the pump. Made my whole day and was done before regular hours even opened. For a take profit you have many options, VWAP, 9 period EMA, next candle in the opposite direction, whenever you feel like it, etc. Not saying this works every time but it's food for thought on one practical example of using RSI along with price action and resistance zones to make a trade.
Long long long time ago when I traded stocks, I used to follow RSI(2) religiously, especially on the daily. Pretty amazing, eh?
Reverse Divergence or Hidden divergence. https://www.tradingsetupsreview.com/rsi-hidden-divergence-pullback-trading-guide/