After adjusting the indicator from 14 periods to 10 periods, the next thing is to find stocks or other markets that are making a minimum 50 day low coupled with RSI reading 20 or lower. You can see what I mean by looking at this graph of Amazon stock.
The next step, after you find both a stock making a minimum 50 day low; and RSI reading 20 or lower, is to continue to monitor it. You can give the stock up to a month to make the second low. The second price low must be below the first low but the RSI indicator must provide a higher signal than the first one. In this particular case, the first RSI signal was 20.00 even while the second RSI low bottomed out at 29.43.
How to Enter the Trade
Simply wait for the stock to trade above the high that was made on the second down day. Give the stock about 5 trading days and place a buy stop about 25 cents above the second bottom day. Remember if during this 5 day period the market trades below the low that was made on the second bottom day the trade is invalidated. Unlike the moving average, the RSI is a leading indicator. These are swing trading indicators that project the future instead of relying on past price history.
If The Stock Trades Below the Second Low The Trade Is Invalid
Stock rallied almost immediately after making the second low. Make sure you place your buy stop one quarter or few ticks above the high that was made the day the second low was made. Always Use Stop Loss Orders When Trading Short Term Reversals.
The Distance Between Your Stop Loss Level And Entry Level Is About $7.50..
Assuming you successfully entered the trade, you must measure the distance between your entry price and your risk level. Once you do so you simply multiply this by four and add it to your entry price. This is your profit target and I recommend you follow the 1 to 4 risk level formula to assure a positive risk to reward level across your trades.
கருத்துகள் இல்லை:
கருத்துரையிடுக