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Learn Stock Indices Trading

Relative Strength Index Stock Indices Technical Analysis and RSI Stock Indices Signals

Developed by J. Welles Wilder, described in the book “New Concepts in Technical Trading Systems”.

RSI is the most popular indicator and it is a momentum oscillator and a stock indices trend following indicator. RSI compares a trading stock index price magnitude of the recent stock index price gains against its magnitude of recent losses stock index price losses and plots this data on a scale of values that ranges between 0-100.

RSI measures the momentum of a stock indices instrument; values above 50 signify bullish momentum while values below 50 center-line signify bearish momentum.

Relative Strength Index Technical Stock Indices Indicator

  • RSI is drawn as a green line
  • Horizontal dashed lines are drawn to identifying overbought and oversold levels are i.e. 70/30 levels respectively.

Stock Indices Technical Analysis and Generating Stock Indices Signals

There are several methods used to trade, these are:

50-level Crossover Signals

  • Buy signal - when the indicator crosses above 50 a buy/bullish signal is given.
  • Sell Stock Indices Signal - when the indicator crosses below 50 a sell/bearish signal is given.

RSI Technical Stock Index Indicator Buy Sell Stock Indices Signals

RSI Stock Index Chart Patterns

Traders can draw stock indices trend lines and map out stock indices chart patterns on the RSI indicator. The RSI often forms stock indices chart patterns such as head and shoulders stock indices chart pattern which might not have formed clearly on the stock index price chart.

Trading Support/Resistance Breakouts

RSI is a leading indicator and can be used to predict Support/Resistance Breakouts before stock index price breaks its support/resistance level. RSI uses the swing failure signal to predict when stock index price is about to break support and resistance levels.

Support and Resistance Breakout

Swing Failure - Support and Resistance Breakout

Overbought/Oversold Conditions

  • Overbought- levels above 80
  • Oversold- levels below 20

These levels can be used to generate stock index trading signals such as when RSI turns up from below 20 after oversold, buy and sell when RSI crosses to below 80 after overbought, sell. These signals are not suitable for trading Stock Indices Trading because they are prone to a lot of whipsaws.

Divergence Stock Indices Setups

Divergence trading is one of the technical analysis method used to trade reversals of the stock index price trends. There are four types of divergences that can be traded with this indicator covered in the divergence tutorial on this website.