how use rsi trading strategy

The 2 period RSI developed away Larry Connors is a mean reversion strategy which provides a short-term buy-sell signalise.

The strategy gives a probable buy signal when 2-period RSI goes below 10 (lour the finer) which is regarded as highly oversold. Similarly move above 90 generates sell signal (of course higher the better) which is seen as a highly overbought zone.

Contents
Identification of long trend
Wait for RSI signal
Actual bargain and sell signal
Exit strategy
How to trade using Larry Connors RSI (2) strategy?
Conclusion

The trading strategy victimisationdannbsp; connor's 2-period RSI basically comprises of four stairs which are discussed below-

1. Identification of far-full term swerve

Systematic to identify the long-term trend, we can take the help of seven-day-term moving norm wheredannbsp; Connor uses 200 DMA for this matter.

When the stock is above 200 DMA, the long-term trend is up and traders may look for buying opportunities.

On the other hand, when the stock is on a lower floor 200 DMA, the long-run trend is down and can be looked upon as a shorting opportunity.

Likewise read: Mastering Inside blockade trading strategy

2. Wait for RSI signal

You may use RSI to identify purchasing and merchandising opportunities inside the broader trend.

Larry Connor found that RSI between 0 to 10 is good buying area but discovered that RSI going below 5 provides a better return than RSI going below 10.

Similarly, RSI in a range of 90 to 100 is good selling country spell RSI above 95 gives a better return than supra 90.

In peltate dustup, the more pint-sized-term overbought or oversold the RSI, higher the subsequent returns.

larry connor 2 period rsi 2 strategy

3. Real buy out and sell signal

This is the most important step since literal purchasing or selling is cooked in this whole step.

Other important factor here is with regard to entering timing.

The ideal steal frame-up takes place when the price is above 200 DMA only below 5 DMA while the deal out setup happens when the price is downstairs 200 DMA but above 5 DMA.

Traders can either give position just before the close or can make stead next day opening.

Some the logical system has its own pros and cons since entry supported on close glide path can be with gap up or gap down which may either survive in favor Oregon against the monger and thus may maximize your possible gains.

Connected the other hand, fashioning position future day opening provides tractableness but can fall back just in case of gap up deal out and so reduces risk.

Depending upon your risk profile, you may make your position. The traders WHO are incapable to devote much time in analyzing charts of various securities may gain from scan section indannbsp;the StockEdge mobile app.

4. Exit strategy

This point is with regards to the exit strategy where Connors suggested exiting your long position when the stock moves above 5 DMA and exiting short perspective when it goes below 5 DMA.

Here you will not enjoy long trending moves but IT is a short-term trading scheme which will result in quick exits.

You may also trail your block up loss using Parabolic SAR or Supertrend so that instead of fashioning an early snuff it, you may ride the sheer trailing your stop loss.

Know More:dannbsp;How to bring fort powerful trading signals victimization Parabolic SAR and RSI?

How to trade using Larry Connors 2 Menstruation RSI strategy?

Based happening the above 4 conditions, we will take a applicatory case to discuss the above trading strategy. The below is the daily chart of Havells India.

rsi strategy havells

In all the above buying situations, the monetary value cd was above 200 DMA but below 5 DMA.

In order to execute the actual sell, you may either realize your position, when the RSI is on a lower floor 5 operating room either close day unrestricted when the RSI crosses 5 from below.

Read More:dannbsp;5 important roles of Relative Strength Index (RSI)

One important thing to note here is that you will execute your trade only all the above conditions are met.

For cash in one's chips, you English hawthorn trail your stop-loss or above the close of 5 DMA.

In the same fashio, straight off we will view the stock on the sell side.

rsi trading strategy Wockhardt

In all the above selling situations, the Mary Leontyne Pric candle was on a lower floor 200 DMA simply above 5 DMA.

Systematic to run the actualised craft, you may either clear your position, when the RSI is above 95 or either next day agaze when the RSI crosses 95 from preceding.

For exit, you may trail your stop loss operating theatre below the close of 5 DMA.

Conclusion

This 2 menstruation RSI strategy is designed not to look for tops or bottom simply to enter in an ongoing uptrend.

But cardinal problem inside this 2 period RSI strategy is that Connor doesn't think in putting stops and he discovered that 2 period RSI may hurt your overall performance and thus helium left connected to traders to decide themselves founded on their risk profile.

You may use 2 period RSI in conjunction with other indicator or strategy so that you can filter out the strategy as per your trading trend.