![\"RSI](\"https:\/\/www.tradingheroes.com\/wp-content\/uploads\/rsi-trading-strategies.jpg\")
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Which RSI trading strategy is best?<\/p>\n
The little-talked-about reality is that there is no one magic RSI strategy that works for everyone.<\/p>\n
Yes, traders do use the RSI successfully.\u00a0<\/strong><\/p>\n But the key is that they have all customized it to suit their personality and the market they trade.\u00a0<\/em><\/p>\n It can potentially be used in any trading market and it's a very flexible strategy that can be used in several different ways.<\/p>\n You have to review the RSI trading strategy options, pick a couple that make sense to you, then backtest them throughly<\/a> to find out if each one has an edge.<\/p>\n If a strategy isn't profitable, you can experiment with the settings and inputs to see if you can make it profitable.<\/p>\n Even after you have a successful backtest, you can continue to work on optimizing the strategy to make it line up with your goals.<\/p>\n So in this article, I'm going to give you a list of all of the RSI trading strategies that I know about, so you can start this process for yourself.\u00a0<\/strong><\/p>\n I'll also include some of my own backtesting results and give you links to RSI related resources that you can use to become a RSI expert.<\/p>\n Alright, if you're ready to become a RSI ninja, let's get into it.<\/p>\n Before I get into the actual strategies, if you're new to RSI trading, then take a minute to read about who invented it and how this indicator is calculated.<\/p>\n This may seem a little boring, but it's very important to understand the benefits and limitations of the RSI.<\/p>\n Knowing how RSI is calculated and what it tells you will allow you to get the most out of it.\u00a0<\/strong><\/p>\n I've written a complete breakdown of the RSI here<\/a>.<\/p>\n Now let's get into the actual strategies.<\/p>\n The traditional use of the RSI is to identify potential turning points on the market.<\/p>\n When the indicator goes oversold, that can mean that too many traders are short and the market is ready for a reversal.<\/p>\n On the other hand, when RSI is overbought that can mean that too many traders are long.<\/p>\n In other words, this is a countertrend trading strategy that looks to trade trend reversals.<\/p>\n The most commonly taught use of the RSI Overbought\/Oversold Strategy uses the following settings:<\/p>\n Traders usually wait until RSI starts to form a peak or bottom out, before they sell or buy.<\/p>\n Here's the most common entry:<\/p>\n When RSI enters the overbought signal level, you can wait for it to peak to take a short trade.<\/p>\n In this example, price had a nice upside run after RSI went into oversold territory.<\/p>\n Of course, not all trades work out this well, but these are examples to illustrate the point.<\/p>\n If you are missing a lot of RSI\u00a0signals, be sure to check out our standard RSI alert indicator<\/a> for MT4.<\/p>\n The stop loss is set above or below the last swing high\/low.<\/p>\n A good take profit is the next support or resistance level, but you can experiment with different levels to see what works best for you.<\/p>\n Here's an example short trade.<\/p>\n You can (and should) backtest this strategy as-is.<\/p>\n But if you're looking for ways to optimize this strategy then I'm also going to give you methods to potentially to improve you results.<\/p>\n Remember that all improvements should be backtested and do not guarantee better results.\u00a0<\/strong><\/p>\n They are just ideas that you can use to experiment with your strategy.\u00a0<\/em><\/p>\n Here are a few things that you can try:<\/p>\n Another way that you can use RSI is as a divergence indicator.<\/p>\n This means that if you spot RSI trending in the opposite direction of price, it's a possible signal that price is going to reverse.<\/p>\n To learn more about RSI Divergence, read this article<\/a>.<\/p>\n The most commonly taught use of the RSI uses the following settings:<\/p>\n Here's the most common entry:<\/p>\n So in the chart above, the blue line on the chart shows the two price peaks going higher, while the RSI peaks are going lower.<\/p>\n This signals a possible reversal of the uptrend.<\/p>\n As you can see, price does drop from this point, but depending on your profit target, it may not have been enough to hit your profit target.<\/p>\n There are at least two other divergences on this chart.<\/p>\n Can you spot them?<\/p>\n These signals can be hard to spot, so it's very useful to have a RSI divergence indicator<\/a>.<\/p>\n The stop loss usually goes above the second high for a short and below the second low for a long.<\/p>\n As far as the take profit, a good place to set it is the next support or resistance level.<\/p>\n Here are a few things that you can try:<\/p>\n As you know, when you get into a big trend, RSI can stay overbought or oversold for a long time.<\/p>\n This can lead to big losses if you continue to fight it and you don't have something like a 2-Strikes Rule<\/a>.<\/p>\n So an alternative to entering a trade when RSI hits the signal level and starts to turn, is to enter the trade when RSI exits<\/em> the signal level.<\/strong><\/p>\n This may mean that you catch the entry late, but it makes it much less likely that you will be fighting a big trend.<\/p>\n The most commonly taught use of the RSI uses the following settings:<\/p>\n Traders usually wait until RSI starts to form a peak or bottom out, before they sell or buy.<\/p>\n Here's the most common entry:<\/p>\n The stop loss for this strategy would go below the low for a long and above the high for a short.<\/p>\n Placing the take profit at the next support or resistance level is the best exit to start testing.<\/p>\n Here are a few improvements to this strategy you can experiment with:<\/p>\n Now we get into a really cool RSI trading technique.<\/p>\nRSI History and Calculation<\/h2>\n
RSI Overbought\/Oversold Trading Strategy<\/h2>\n
Indicator Settings<\/h3>\n
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Trade Entry<\/h3>\n
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Short Example<\/h3>\n
![\"RSI](\"https:\/\/www.tradingheroes.com\/wp-content\/uploads\/download-2.png\")
<\/p>\nLong Example<\/h3>\n
![\"RSI](\"https:\/\/www.tradingheroes.com\/wp-content\/uploads\/AUDUSD_2024-03-25_15-38-34.png\")
<\/p>\nStop Loss and Take Profit<\/h3>\n
![\"Stop](\"https:\/\/www.tradingheroes.com\/wp-content\/uploads\/RUT_2024-03-25_21-13-32.png\")
<\/p>\nPotential Improvements<\/h3>\n
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RSI Divergence Trading Strategy<\/h2>\n
Indicator Settings<\/h3>\n
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Trade Entry<\/h3>\n
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Short Example<\/h3>\n
![\"RSI](\"https:\/\/www.tradingheroes.com\/wp-content\/uploads\/download-3.png\")
<\/p>\nLong Example<\/h3>\n
![\"Long](\"https:\/\/www.tradingheroes.com\/wp-content\/uploads\/long-divergence.jpg\")
<\/p>\nStop Loss and Take Profit<\/h3>\n
![\"Rivian](\"https:\/\/www.tradingheroes.com\/wp-content\/uploads\/RIVN_2024-03-25_21-17-19.png\")
<\/p>\nPotential Improvements<\/h3>\n
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RSI Exit Trading Strategy<\/h2>\n
Indicator Settings<\/h3>\n
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Trade Entry<\/h3>\n
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Short Example<\/h3>\n
![\"\"](\"https:\/\/www.tradingheroes.com\/wp-content\/uploads\/download-1-1.png\")
<\/p>\nLong Example<\/h3>\n
![\"Long](\"https:\/\/www.tradingheroes.com\/wp-content\/uploads\/SPX_2024-03-25_17-37-06.png\")
<\/p>\nStop Loss and Take Profit<\/h3>\n
![\"AT&T](\"https:\/\/www.tradingheroes.com\/wp-content\/uploads\/T_2024-03-25_21-28-39.png\")
<\/p>\nPotential Improvements<\/h3>\n
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Larry Connors RSI 2 Trading Strategy<\/h2>\n
![\"RSI](\"https:\/\/www.tradingheroes.com\/wp-content\/uploads\/EURAUD_2024-03-26_01-32-07.png\")
<\/p>\n![\"USDCHF](\"https:\/\/www.tradingheroes.com\/wp-content\/uploads\/USDCHF_2024-03-26_01-30-02.png\")
<\/p>\n![\"EURNZD](\"https:\/\/www.tradingheroes.com\/wp-content\/uploads\/EURNZD_2024-03-26_01-37-04.png\")
<\/p>\n![\"Short](\"https:\/\/www.tradingheroes.com\/wp-content\/uploads\/SPX_2024-03-25_17-40-50.png\")
<\/p>\n![\"RSI](\"https:\/\/www.tradingheroes.com\/wp-content\/uploads\/download5.png\")
<\/p>\n![\"Natural](\"https:\/\/www.tradingheroes.com\/wp-content\/uploads\/NG1_2024-03-25_22-11-08.png\")
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