The Complete Beginner’s Guide To Use RSI Effectively In Trading

I have been profitable trading stocks by using momentum. Well, I use the 52 weeks high and buy within 20% below it. Of course, I use other scans to select the best. However, I want to share another strategy that I found online.

To use RSI effectively, use the 30 period RSI instead of 14. RSI(30) detects breakout stocks early in the trend.

This strategy is not mine. My mentor shared Spyprats method to find high momentum stocks.

I often find stocks trading within 20% below the 52 weeks high when I use this scan.

Here are the details:

  • RSI(30) > 70: Stocks is at Parabolic status (source)
  • RSI(30) > 50: Uptrend
  • RSI(30)<50: Downtrend
  • Weekly RSI(30)> Daily RSI(30): Best Set Up (Weekly RSI reach Parabolic status first)
  • Parabolic High Risk: Daily RSI > Weekly RSI
  • Extreme Parabolic High Risk: Both weekly and daily RSI is >80

The first break of the RSI 70 triggers a buy signal.

Parabolic Status

Parabolic status is a condition that a stock has reached a high momentum stage. Also, there is no limit where the stock can go.

Parabolic chart illustration image
Parabolic Status

Parabolic status has the potential for large profits. After the first RSI 70 break, you can buy at the open the next day. Also, at the Parabolic risk level, you have to sell at least half of your position.

Screening

Caveat

Please backtest the strategy before using it. You alone can review if the strategy is working.

We can’t use this strategy for long-term trading because the stock will move very fast at parabolic status.

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