Day trading using RSI to identify oversold and overbought markets is easy when using the TradersHelpDesk RSI indicator. The yellow dotted line at 50 and -50 on the chart below show when markets are overbought or oversold. Whenever markets are overbought, we would expect a downward retracement. Whenever markets are oversold, we would expect an upward retracement. The THD RSI Multidata allows traders to monitor multiple markets for identifying any market that is either overbought or oversold.
Day Trading Using RSI to Identify Oversold and Overbought
For example, on the chart below, the vertical lines shows that the Gold 1440 minute chart is oversold (right hand side of the screen). Then if we zero to the chart itself, we can see that price meanders down a little further but momentum is not increasing. This produces divergence between the RSI and price (RSI is a directional indicator so if price is making new lows than the RSI should also make new lows). This is further confirmed by the second divergence where price has flipped the ATR from red to blue and a line of congestion dots have appeared. The line of congestion dots indicate that price is trying to form a support area for price to go up. The RSI confirms this because it has went from bright red to dark red. As ..price goes back to the blue ATR, a line of support is formed and price will more likely than not, test the line of congestion dots at 1102.80. Click on the chart to expand.
During October, if a trader were day trading using RSI indicator, he could have entered the uptrend at the line of congestion dots around the 1102 area as the RSI indicator was showing price had formed support at that level because it could not break the congestion dots and the RSI could not flip to red. This indicated that there was not momentum to the downside and that price would more than likely go up from this area.