RSI as a profit taking strategy
Relative Strength Index (RSI) is a momentum oscillator that measures the speed
and change of price movements. The RSI oscillates between 0 and 100. RSI is
considered overbought when above 70 and oversold when below 30. Signals can
also be generated by centerline crossovers over or under 50. Over 50 is a bullish
cross and under 50 is a bearish cross. RSI can also be used to identify the general
trend as greater than 50 is bullish and less than 50 is bearish. A breakout over 70
and a breakdown under 30 can also be used as a trend indicator. The Relative
Strength Index can show when price has become overbought or oversold, is due
for a potential reversal, or the danger of something going parabolic as it breaks
out.
Chart patterns as visual trends
Chart patterns use trend lines to map out the buying and selling of market
participants looking for trends and potential reversals of trends. Flags, pennants,
triangles, cups and handles, are examples of connecting the lows or highs in
price over a time frame to establish a trend of higher highs, lower lows, or price
ranges. Chart patterns can be bullish, bearish, continuation, or reversal patterns.
Chart patterns are about connecting trend lines to identify potential breakout
points for an entry to capture the next trend.
Trends are your friend
Uptrends are defined as a market having higher highs and higher lows in a
specific time frame. Downtrends are defined as a market having lower highs and
lower lows in a specific time frame.
Trends have to be quantified based on your trading time frame. Warren Buffet
trades the longest term trend: he bets on the capitalist system always driving up
the prices on the stocks of the best businesses. A day trader may only be
concerned with the next hour a stock is trading. The simplest way to make
money in the financial markets is to identify the trend, quantify the trend, and
stay on the right side of it in your time frame. There are many ways to do this.
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