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The Official CARDWELL RSI Website. FREE eBook Download Trading vs Making Money Trading v/s. Making "The Cardwell RSI Methodology". Glad that . Description: Andrew Cardwell's work on the Relative Strength Index (RSI) is the By combining RSI with key technical indicators including moving averages. The perfect specialized sign, based on Andrew Cardwell, Junior within Andrew Cardwells Best Trading Strategy Free Pdf., is actually one which.
E2, and F1 vs. F2 regardless if the large moves are included or not remains basically the same. This allows us to place more significance into the actual 3 4 values of the RSI. In addition, the RSI indicator is always contained within a vertical range from 0 to This saves us from constantly referring to the past indicator values when determining overbought or oversold levels.
This problem of comparing past highs or lows occurs because typical momentum indicators are not contained within a predefined vertical range.
Most books on technical analysis when discussing RSI will typically use a day look back period to perform its calculation.
The longer the time period, the less sensitive the RSI becomes to oscillate and the smaller its amplitude changes. I prefer a look back period of 14 as it works the best in all time frames, and it is one half the lunar cycle. For intra-day time frames, some traders will use a nine period look back. In the gold, silver, crude and financials a day look back period performs well.
There seems to be a day cycle on these markets, and a day look back is half the cycle length. It is important to realize the RSI formula requires at least 90 periods worth of data to provide valid results. Otherwise, the RSI formula will not give accurate results for trend analysis.
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When I look at daily charts, I prefer at least days worth of data to earn my trust in the validity of the RSI data. Every book on technical analysis I have read when discussing the RSI will state that, any movement above 70 is considered overbought, while any movement under 30 is oversold.
An important fact to remember is that any oscillator RSI included in a strongly trending market will become either oversold bear market , or overbought bull market , and consequently will remain oversold or overbought for quite a while.
A few books on technical analysis will adjust these levels.
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They recommend that in a strong bull market, the 80 level becomes the effective overbought level, and the 20 level becomes the effective oversold level in a bear market. Wilder states in his opinion that the greatest value of the RSI is in pointing out a divergence between the graphs for the RSI and price behavior. Their graphical behavior reveals a bullish divergence or as he calls it a bottom failure swing when the price makes a new low, while the RSI continues under 30 and fails to make a new low.
Similarly, the opposite event would apply to a bearish divergence a top failure swing , and would be considered a short-term selling opportunity! This synopsis sums up public knowledge about RSI. However, what the average investor comprehends is a small part of the dynamic overall picture. For example, if the range effectively shifts in a bull market so that 80 is overbought, then Andrew Cardwell realized that the support level must also shift. Inversely if the oversold level in a bear market will shift down to 20, then the resistance level in a bear market must also shift.
Determining the RSI Range An up trending market will typically find support at the 40 level, with effective resistance at the 80 level.
A down trending market will find resistance at 60, with effective support at the 20 level. Often times a primary indication that the trend has shifted from a bear trend to a possible bull market occurs when the RSI which previously was respecting the 60 level, rallies up to 70 or higher.
When the inevitable decline arrives, the RSI will respect the 40 level, before rallying again.
Recognizing this RSI behavior is very useful when first looking at a chart of a 4 5 commodity or stock. Inspecting the range the RSI is in, is the first clue indicating the trend. Old resistance points could become new resistance points, and if broken a new support level upon a retracement.
Likewise, old support levels could prove to be effective support again, and if broken will prove to be effective resistance.
Here is a longer term Japanese Yen chart: At A there is a small bearish divergence indicating that the prior uptrend is about to take a detour. Price subsequently declines to B finding support at the 40 level. The rally to C is our first hint that a trend change could be coming, as the 60 level proves to be effective resistance.
The decline in prices to D violates the previous support line at At this point, we realize that what should have been support failed, that 60 was effective resistance at C , and that the trend has probably changed. The price rallies a little bit after D before faltering, and declining to a new low, however the RSI fails to make a new low.
Instead, it makes a bullish divergence! At this point, we can safely say that the prior bull market died! The RSI level of 60 C proved to be resistance because the 40 level failed to provide support decline C to D , and a bullish divergence was made. Where the bulls got excited about the bullish divergence, is where we should be looking for a place to get short!
The rally to E respects the 60 level again before dropping to F. However, the RSI finds some support at F indicating that the bulls might be getting ready to rally prices. When the rally falters at G we can safely assume that the bear market is still in effect.
The low at H was not followed by a bullish divergence; a minor indication that a trend change could be coming.
This was somewhat confirmed at I as the RSI managed to rally above 60 to before dropping. Our suspicion became more valid as the subsequent decline to J found support at the 40 level. This was similar to the RSI finding resistance at the 60 level at C.
The rally to K violated the resistance level, and the decline at L finding support at the 60 level confirmed that we were now back in a bull market. In fact just as we were looking for a place to get short prior to E , we should also be looking for a place to get long prior to L.
The decline to N found support again at the 60 level. Notice that this is the second time that 60 acted as support. This behavior by the RSI indicates that we are in a strong bull market. In contrast, this would be similar to the 40 level acting as resis tance in a bear market. In fact, after the bear decline to D the market rallied a little bit finding resistance at the 40 level six days later a six period bullish divergence.
Following the rally from N we had a bearish divergence at O , followed by another divergence a few days later. The subsequent decline in price to P was followed by a warning that the trend could be changing came at Q as the RSI found resistance at the 60 level with a small bear divergence that led to a decline to R. The explosive rally to S was a strong indication that the bull market is still alive and well.
It is interesting to note that S is itself a longer-term bearish divergence against O. The first indication by the RSI that the bull market in Yen has ended will be the 60 level acting as resistance followed by a violation of the 40 level or the price will negate the 40 support level without first encountering resistance at the 60 level.
In an uptrending market, the charts reveal that the current support levels were actually former resistance levels on the price and RSI chart during previous days and weeks. However, is a down trending market, the charts reveal that the price or RSI values will eventually violate former support levels. Consequently, these former support levels during previous days and weeks were eventually transformed into current resistance levels by the down trending markets behavior.
Looking for a Divergence A very significant clue that the trend is about to change occurs when a divergence is present. A possible bullish divergence occurs when the price makes a new low, yet the momentum oscillator fails to also make a new low. It becomes a valid bullish divergence when the price turns up from the low, and the oscillator turns up. Likewise, a possible bearish divergence occurs when price makes a new high, yet the RSI doesn t.
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It becomes a valid bearish divergence when the price drops. I hinted at this in the above section. What I am about to say next will shock traditional traders. Yes, I know that this flies in the face of what all the textbooks say. Remember, we want to detect the moment the market might change its direction. The important point is that in the majority of the cases my claim is very true. You will only find repeated bearish divergences in an uptrending market.
Similarly, bullish divergences will repeatedly occur in a bearish market. If you find this hard to accept then get a chart weekly, daily of the Japanese Yen, and start looking at what the RSI did after July to July 6 7 You will be hard pressed to find a bearish divergence in the daily chart, and there is no bearish divergence in the weekly chart!
Detecting a divergence is one of my favorite tools. This next chart shows how stocks behave the same as a futures, or commodity contract. The stock of Cisco experienced multiple Bearish Divergences, and yet the price continued to rally. Think of a divergence as a detour; the overall trend will resume once the price can get past this temporary resistance or support area.
Divergences always are associated with any momentum-based indicator. It typically shows up at the momentum high, or low.
For example when a bull market is overbought, inevitably there will be a correction.
On the other hand, when a stock is in a bear phase then it oscillates in the range of 20 to You may do NSE Academy Technical Analysis course to learn the various aspects of Technical Analysis and to also learn trading strategies to trade in the real market. Hence, we should avoid trading when Relative Strength Index is under sideways range. Based on the above discussed Relative Strength Index or RSI range parameters, one can easily trade the underlying asset.
Moreover, in the above range shift scenarios, we have taken an additional range of 5 points i. Hence, a 5 point cushion in the RSI range is taken. Now we will apply this range shift phenomenon in the charts and see its utility in order to maximize the gains and to book our position.
The above is the monthly chart of Reliance Industries where we will understand the Bullish range, Super bullish range, and Sideways range. The bullish range is defined with the help of blue box where RSI tends to oscillate between the range of , where 80 is an overbought condition and 40 being the oversold condition. As seen in the chart, whenever RSI touched 80 zones, price tends to slow its momentum and turns down.
Next green box in the chart indicates super bullish range under which RSI tends to oscillate between the range of It is clearly evident that the stock is getting ready for the strong upmove.
However, the sideways market is shown with the help of red box where the RSI tends to oscillate between 40 to zones. Here the stock price is expected to move sideways and the trader can witness a lot of whipsaws.You Learn Forex, a Florida company, has been in business for over 2 years working to solve that problem with the introduction of a new trading system.
In the beginning, this might seem repetitive… however, the actual second option 2 possess some predictive worth and therefore are greatest described via graph good examples.
This allows us to place more significance into the actual 3 4 values of the RSI. This indicator measures the relationship between the closing price to the high, and low price for the period under consideration. You might want to take partial profits on your long position, as your prices could be about to take a detour! One more thought on moving averages.
Consequently, these former support levels during previous days and weeks were eventually transformed into current resistance levels by the down trending markets behavior.