T2W Trading Community

Other Considerations

RSI Strength of move

Take the move in RSI in this case, from 72 to 32 - 40 points. Take the point’s move in the DOW.  In this example, from 7470 to 7435 = 35 points.  IF you get 1:1 correlation, the move is AVERAGE. IF you get: 1.5: 1 the move is STRONG. So a 40 point move in RSI should give a point move in the Dow of >60 points for a strong move. Strong moves don’t go pear shaped if you are on the right side of the trade.

To make it simpler take the number of points the market has moved and divide that by the number of points move in RSI. >1:5 the move is strong and unlikely to go wrong.  <1:1 the move is weak.

RSI considerations

As stated earlier, be careful about declaring RSI  less than 30 as well oversold. You need to take note of RSI values throughout the day. If the low today was 12, then you can't say 30 is oversold... BUT next week, sometime, that statement may well be true. For example if the low is at 9180, RSI was at 12 it would be difficult to consider the RSI at 30 as being oversold.

Indicator Patterns

We can see the same formations in CCI and the RSI, and they will often breakout before the price, action giving us valuable clues as to the possible direction and timing of the move.  The best way to use these indications is by confirming an opinion formed by the price action.

For example, you can get an earlier exit from the first long, in Figure 10, just as the triangle in both CCI and RSI breaks down before a safe entry is confirmed by the 100 EMA.  A gamble entry could be considered at this point but as the 100 EMA is so close, waiting for a safe entry will not lose many points in this example.  Additionally, there is a H&S reversal pattern that has formed at the same time.   With several pieces of information all pointing to the same thing, the exit was a good decision. To close the long and the reverse for a gamble entry short is also a reasonable entry on this occasion.

Continuation of TA

For the continuation of TA - other than support and resistance levels - you should essentially be looking for today’s open to be as close to yesterdays close as possible in order to continue yesterdays closing analysis.

Figures 11 & 12 show the long-term support and resistance lines and those same levels for the following days trading, so you can really appreciate that they are important, once they are established.  In this case, 8510, 8550 and 8580, the latter going back to 2nd May.