ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Three Profitable RSI Stock Trading systems

Updated on September 3, 2019

The RSI indicator can be a valuable tool in creating fast profits trading in the stock or option market. The methods I will describe are bullish and bearish divergence, secondary oversold bounce, and the multiple bottom pattern. But first it’s important to learn what RSI really is. Investopedia.com describes it as “a momentum indicator that measures the magnitude of recent price changes to evaluate overbought or oversold conditions in the price of a stock or other asset. The RSI is displayed as an oscillator (a line graph that moves between two extremes) and can have a reading from 0 to 100.”


Secondary Oversold Bounce

A stock that experiences a fast sell off can most often have an oversold bounce. This is caused by several reasons. A lot of short sellers could be covering to collect their profits, bullish traders are betting on a recovery, and other traders are expecting an oversold bounce. I don’t typically trade this bounce as it is usually short lived and hard to predict. I prefer to wait for what I call the secondary oversold bounce. This is used following the RSI. The stock goes into oversold on the initial sell off below the 30 RSI and then makes its first bounce. It is at this time my stock screener picks it up and I begin to stalk it. I wait til the price recedes and the RSI drops back to the 30 line. The second bounce can be really significant, often times by as much as 30%. As always this is best traded after a reversal candle which is usually a hammer or simply a bottoming tail. Confirmation must be assessed using price action the next trading period as this can move before waiting on the candle to close. I have made large profits trading this system.

Divergence

Another popular trading system used by stock traders and especially futures trading is bullish and bearish divergence. This is also used following the RSI indicator. Basically a trend in the stock is going one way and the RSI trends another. I look for lower lows in the trend of the stock and higher lows in the trend of the RSI. This is called bullish divergence. The opposite is true for bearish divergence. For bullish divergence I wait for the RSI to curl up and a reversal candle with confirmation the following day to enter a trade. Some traders live and die by this technique and it can be a successful method. The key as always is to have confirmation of a reversal candle.

Multiple Bottoms

Of the three methods proposed in this article multiple bottom trading is by far the simplest. Stan Weinstein, author of Secrets to Profiting in Bear and Bull Markets proposes there are four stages to the cycle of a stock. The first stage is consolidation at the bottom with swings up and down trading in a range. The second stage is a large move to the upside finished sometimes by a parabolic move up. This sets up the 3rd stage which is consolidation and a 4th stage with a big move down to start all over again. For the multiple bottom pattern we are only concerned with stage 1. I prefer to trade the second or third bottom. This doesn’t always have to be a bottom at the same price but it is important to have a bottom of the same RSI. This is usually at the 30 but once again you can have a higher low in the RSI creating bullish divergence making this pattern even more potent. Always wait for a reversal candle at the bottom with confirmation the next trading period to enter a trade.

Comments

Submit a Comment

No comments yet.

working

This website uses cookies

As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://corp.maven.io/privacy-policy

Show Details
Necessary
HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
LoginThis is necessary to sign in to the HubPages Service.
Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
AkismetThis is used to detect comment spam. (Privacy Policy)
HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
Features
Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
MavenThis supports the Maven widget and search functionality. (Privacy Policy)
Marketing
Google AdSenseThis is an ad network. (Privacy Policy)
Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
Index ExchangeThis is an ad network. (Privacy Policy)
SovrnThis is an ad network. (Privacy Policy)
Facebook AdsThis is an ad network. (Privacy Policy)
Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
AppNexusThis is an ad network. (Privacy Policy)
OpenxThis is an ad network. (Privacy Policy)
Rubicon ProjectThis is an ad network. (Privacy Policy)
TripleLiftThis is an ad network. (Privacy Policy)
Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
Statistics
Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)
ClickscoThis is a data management platform studying reader behavior (Privacy Policy)