RSI indicator is one of the most powerful technical indicators. In this piece of content, I will explain various aspects of this indicator and point out how you can ideally generate RSI indicator buy and sell signals.
I will not only show you how you can produce rsi indicator buy and sell signals properly but also which signals you should take and which ones you should avoid. Thus, by making the right decision and signals, you will be able to increase your trading balance daily.
RSI indicator buy and sell signals
Generally, when rsi is below 30, you try to find buy signals, and when the rsi value remains above 70, you try to place sell signals. But today, we will discuss something new. We will consider value 20 to take buy trades and value 80 to take sell trades.
But if you blindly take buy or sell signals just seeing values 20 and 80, you will surely get too many false signals. That’s why we will also take a look at the price chart. If we find a robust bullish and bearish candle, odds will be in our favor. Most of the RSI indicator buy and sell signals we produce will go in profit.
RSI trading strategy
Many strategies are based on relative strength index rsi, but today’s strategy is based on an overbought and oversold market. Candle will give us confirmation when we should enter the market. Most methods fail due to a lack of a proper money management plan. Like when to close the trade, where to stop loss, where to place take profit, or when we should book the profit. This strategy has that proper plan. We will always take our profit when levels 50 crosses, in a buy trade near to 60 levels, and for a sell trade near to 40. Stop loss is fixed 50 pips from our entering point.
How to read rsi oversold market-Buy signal
Take a look at the picture above. The AUDUSD chart shows that the rsi indicator touched level 20. Then we check the price chart. We find that a robust bullish candle is also formed. From these two pieces of information, we could assume that the market is oversold and it’s time to turn the market. If we took this trade, we could book 170 pips in a single trade.
Our take profit will be at the end of the shorter trend or move. More specifically, when it crosses 50 levels, we will be prepared to exit our trade. We exit after rsi crosses 50 levels and reaches 60 levels. Also, the price finishes a short up move. Now the time is perfect for exiting the trade.
Our stop loss will be below 50 pips of our entering position. Check how the price tried to fall more but didn’t fall even near our stop loss level.
How to read rsi overbought market-sell signal
Another example. But this time for a sell trade. RSI indicator is in an overbought zone means it touches the 80 levels. Be prepared to place sell trade. Wait! We need another confirmation. Now check whether there is any solid bullish candle or not. Yes. You find a strong bullish candle. Now you can place a sell trade. Check how beautifully the price drops from that level.
Your take profit will be when rsi crosses level 50 or, more specifically, near to anywhere 40 levels after the market finishes a short falling trend. Look here; we get 201 pips in a single trade. Although the price has fallen more, we will not wait for that long. Instead, we will exit the trade with our sweet pips and enjoy the dollars with our friends and family.
Your stop loss will be above 50 pips from the point you enter the trade. In this example, we can see that price even didn’t go anywhere to our stop loss. Your stop loss is far behind our trade.
Best rsi settings
Although the default rsi settings are 14 period and overbought level 70, oversold level 30. But I recommend using overbought level 80 and oversold level 20 with 14 periods. According to my research, this is the best rsi settings. If you know how to use rsi indicator, trading and making money through forex will be fun. But if you don’t know what the best rsi settings are and use default settings like most newcomers, then you will be whipsawed by the market often. The market will fraud you with fake signals.