Uptrend trading schools
This suggests that the bullish trend is still intact. The location of the RSI above 40 confirms that there is still a lot of bullish pressure and that demand is likely to produce a significant price move upward and exceed the prior high. In a downtrend, we want to let our shorts go as far as possible to maximize profits.
Prices should not become overbought on the RSI while in a downtrend. Strong bullish pressure signals the downtrend is not as powerful as it was.
When we see rallies in the bearish trend fail to breach the 60 level on the RSI, then the bearish momentum and downtrend is still strong and we are likely to see prices continue to break demand levels.
If we see the RSI moving above 60 when price hits supply, we may want to look for another trade or have shorter targets as price is unlikely to make new lows if it does bounce from supply. To remember the use of the RSI, I have come up with a saying: And if at supply and the RSI is above 60, then supply is a lie.
Remember that RSI, as with any technical indicator, is to be used as an odds enhancer. Educated traders know that the decision to buy or sell should be made from the price action itself and the use of the core strategy of Supply and Demand.
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This means the trend is becoming weak and is likely to end soon. The logic behind this is that a strong trending market does not pullback often. If it does, it is not a strong trending market anymore. Keeping with our constant supply and demand theme, remember that a trend on any time frame is really a supply and demand imbalance moving back into a price level of temporary balance. This is a larger time frame chart but the assessment can be done in any market, and any time frame.
The two ways most traders use them are first, to determine trend by looking at the slope of the moving average. Second, they use the moving average cross to time an entry buy or sell signal into a position or an exit out of a position.
This technique is very flawed in that moving averages by definition will lag price; they have to. Notice in the chart example, I have circled the moving average cross. Moving averages cross because there has been a relatively strong move in price. At the origin of a strong move in price, demand and supply are out of balance. Price levels where demand and supply are out of balance is where we typically find low risk, high reward and high probability trading opportunity.
So, try identifying moving average crosses in the past and let that lead you to investigate the price action in that area. Chances are high that you will find a key demand or supply level there.
These are two examples of how you can take conventional Technical Analysis, look at it and use it slightly different than your competition in hopes of attaining an edge.
Disclaimer This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader.
The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results.