RSI provide a good indication whether a stock is considered overbought. When RSI is around the 70-80 level, it is considered to be overbought condition and you should consider selling. This is because an overbought stock since stocks often trade at higher valuations during bull markets
is likely to fall. Likewise, if the RSI approaches 30 a stock is considered oversold and you should consider buying.

Thus you would be able to use simple RSI to validate the patterns and cycle for different stocks. The shorter number of days used, the more volatile the RSI is and the more often it will hit extremes. A longer term RSI is more rolling, fluctuating a lot less.

We advise to us different threshold levels for Different sectors and industries for the RSI Measurement. Backtesting the stocks in some industries's pattern with different RSI value would reward you with more accurate signal.

We would definitely define a simple trading system using RSI for Short Term Trade.

If RSI(10) < 25 Buy Long
and close position when RSI(10) > 55

If RSI(10) > 80 Buy Short
and close position when RSI(10)<55

Author by Charles Carr Website: ww.optionsxpert.com