Scribd
Upload
22 views3 pages

rsi

Uploaded by

Sunil Jadhav
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
22 views3 pages

rsi

Uploaded by

Sunil Jadhav
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 3

by: Jim Wyckoff

The ideal technical indicator, according to Andrew Cardwell, Jr., is


one that offers capability to identify and monitor the current trend,
highlight overbought and oversold extremes, and give early
warnings of a trend change.

“The Relative Strength Index (RSI) is such an indicator, offering


the best of all worlds,” said Cardwell, president of Cardwell
Financial Group, Inc., based in Woodstock, Ga. The RSI “is the
cornerstone of my trading model,” he said.

Cardwell is a featured speaker at this weekend’s 20th annual


Telerate Seminars Technical Analysis Group (TAG 20)
conference here.

“In the lectures and workshops I have given, I have shown how
the RSI can be used as either a completely independent trading
model or an addition to and enhancement of a trader’s current
technical approach. I use it as a completely independent model to
identify trend, support and resistance, overbought/oversold levels,
divergence, trend change, reversal and price targeting.”

Cardwell said most traders who use the RSI focus their attention
on trying to identify bullish and bearish divergences. He said basic
price and momentum divergence can and does help to identify
extreme overbought or oversold conditions in market momentum.

“However, most traders fall prey to the concept of divergence and


see it as the end or reversal of the prevailing trend of the market.
All would be right in the world if markets were to reverse from
simple divergence. But there are times when sentiment and
momentum are so strong that the market continues to make new
highs (or lows), which will keep the RSI at overbought (or
oversold) levels for extended periods of time.
“Momentum and price corrections, when they do materialize, are
usually sharp and swift. After these brief respites the market is
then ready to resume its normal upward (downward) trend. With
each successive new high (low) and divergence formed, anxious
traders are ready to call for a top (bottom) and reversal of trend.
However, in strongly trending markets, multiple divergences can
and do develop, which only lead to corrections of the overbought
(oversold) condition of the market.

“If a trader attempted to take positions based solely on


divergences, he or she would need deep pockets and eventually
exhaust his or her trading capital,” said Cardwell.

While Cardwell takes note of divergence, he said that only shows


the market is overextended and needs to correct the overbought
or oversold condition. Even though the RSI is considered a
momentum oscillator, he said it has more values as a trend-
following indicator.

“One of the guidelines I have established for myself is to identify a


range for uptrends as well as downtrends. As the market trends
higher or lower I will adjust the normal range of RSI (70-30) to
account for the shift in market momentum and bullish or bearish
sentiment on the part of the traders. The fact that this adjustment
needs to be made in the range of RSI is one of the first indications
that the market is undergoing a trend change.”

The ability of a trader to recognize a trend change quickly,


reverse a position and trade in the direction of that next trend is
the skill that traders must develop to be successful, said Cardwell.
“By having a position in tune with the trend, the trader will have
the opportunity to participate in the bigger market moves, which
generate larger profits.”
Cardwell has what he calls “Three Keys to Success: have a
trading program, patience and discipline.”

Email this page to a friend

You might also like