How to Profitably Trade Using the RSI Trading Strategy

Do you want to know more about Relative Strength Index indicator and how to use RSI indicator for day trading? Watch our latest video to find out how to profitably use the RSI trading strategy.

RSI trading strategy – A simple explanation

The Relative Strength Index indicator and trendline combination makes for a nice trading system. The RSI measures the overall strength of the market, and has 2 major levels, the 70 and the 30. Above the 70 level shows a very strong bullish momentum, while a move below the 30 shows an extreme bearish momentum. When used with trendlines, this can give you an idea as to when a trade could be placed.

For example, on the USD/JPY chart, weekly time frame we have a nice uptrend line that is accompanied by a strong reading in the RSI. However, before the trendline was broken to the downside, the RSI slipped underneath the 70 handle. By doing so, this suggests that perhaps the market is starting to run out of strength, and thereby fired off a sell signal. You can see that the market fell initially, and then tested the trendline for resistance. As that held, the market fell rather significantly.

This system works well with longer-term markets, as the signals don’t fire off very quickly. This gives you a bit of a “heads up” and can get you on the right side of a large move. Because of this, it can keep you in a trade for a long-term move.