You may ask - why secondary? Well .. the RSI indicator is really a very simple technical tool and following only the signals it generates can be catastrophic. Does this mean that the indicator is poor? Of course not! I called it the ideal supporting tool because it is just right to confirm the signals generated by, for example Stochastic or Bollinger Ribbon.

Before I explain to you how JA I use this indicator, it would be good to say at least a few words about how it works and what the tool is. Simply put RSI shows the strength of the trend. 

If you think about my previous opinion, you will find the answer why this indicator alone can lead to many misunderstandings. If you still do not understand, I hurry with the translation. The higher the purple line goes up, the stronger the upward trend (similarly in the case of a downward trend). Many inexperienced investors open the PUT option when they see that the purple line has broken through the green horizontal line thinking that the price is about to turn back.

The mindset is fine, but you have to remember that the price is in a very strong trend and may continue to go up for a while. As you can see in the screen at the top of the article - the purple line pierced the green line and was going up all the time. If I were to play options hoping that the price would turn back one day, I would lose a lot of money.

I do not use this indicator in some equilibristic way. At the beginning I mentioned that it is an ideal tool for confirming signals. And that's how I use RSI. If I am currently using the Stochastic indicator and I am not sure if the price may return, I start the RSI and check if the purple line is in the zone redemption or sale. This gives me important information that my play can be effective.

1. RSI is a signal confirmation tool

2. It can be very ineffective if this tool is used without the support of other indicators

3. If the price exceeds the 70 line (green) it is a signal that the price may start to turn back

4. If the price crosses the 30 (Red) line, it is a signal that the price may start to reverse

5. RSI works very well with Stochastic Oscillator and Bollinger band

The article contains many simplifications used for the simple transmission of content

 

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