RSI & Exit Point ?

From the inception, let me be clear that I am not a Technical guy.
I was looking at the RSI of some of the shares in my portfolio and they are as under
GLAS – 87.58,
RICH – 77.33,
JINS – 81.13,
UBC – 85.76.
Remembers reading somewhere earlier that when RSI is above 70 is to get out.
Is that correct or any other technical indicators are to be seen along with RSI to determine the time of exist?
Can some experts enlighten please ?

Pls let me know wht is RSI & hw to calculate it , or anyother way to know it??

A threshold like 85 is alrming...
RSI above 85 means an extremely overbought market condition,

When a market is rising but the trend is not that strong any oversold situation in the RSI brings us a good opportunity to take a profit.
I.e. when trading in stocks, RSI rising above 75 or 80 often signals that a correction is on the cards.

For better results, coupling RSI with ADX would be helpful. Further it could be made extra safe by bringing the Do day MA into the picture too..

When the ADX is rising the RSI tends to get overbought and it can often remain overbought for a surprising length of time.

Then we can have some simple trading rule on entrance;

1. The 20 day MA must be rising (some prefer 5,10 day MA also). It all depends on markets, a back testing would be useful to take the ideal figure.
2. If the ADX is rising then buy if the RSI is less than 85.
3. If the ADX is not rising then buy if the RSI is less than 50.

However RSI can even run up to 100 before a fall is imminent, hence ADX would be a better gauge to find the exit points..

smallville wrote:A threshold like 85 is alrming...
RSI above 85 means an extremely overbought market condition,

When a market is rising but the trend is not that strong any oversold situation in the RSI brings us a good opportunity to take a profit.
I.e. when trading in stocks, RSI rising above 75 or 80 often signals that a correction is on the cards.

For better results, coupling RSI with ADX would be helpful. Further it could be made extra safe by bringing the Do day MA into the picture too..

When the ADX is rising the RSI tends to get overbought and it can often remain overbought for a surprising length of time.

Then we can have some simple trading rule on entrance;

1. The 20 day MA must be rising (some prefer 5,10 day MA also). It all depends on markets, a back testing would be useful to take the ideal figure.
2. If the ADX is rising then buy if the RSI is less than 85.
3. If the ADX is not rising then buy if the RSI is less than 50.

However RSI can even run up to 100 before a fall is imminent, hence ADX would be a better gauge to find the exit points..

Thanks a lot small Ville , does ADX available in the Direct fn , i found RSI is there , is ADX =Intraday momentum index or Moving average (MACD)??

Kithsiri wrote:From the inception, let me be clear that I am not a Technical guy.
I was looking at the RSI of some of the shares in my portfolio and they are as under
GLAS – 87.58,
RICH – 77.33,
JINS – 81.13,
UBC – 85.76.
Remembers reading somewhere earlier that when RSI is above 70 is to get out.
Is that correct or any other technical indicators are to be seen along with RSI to determine the time of exist?
Can some experts enlighten please ?

Whats the time period you guys using to get the RSI value ? Because stranded 14 day period I don;t get those values and further days u put more stable it becomes!

Rajitha wrote: Whats the time period you guys using to get the RSI value ? Because stranded 14 day period I don;t get those values and further days u put more stable it becomes!

Three months period.

I re-referred the details in the Direct FN provided by my broker and it was giving me different figures (not so alarming, except in the case of UBC which is higher than 85).
Now wondering whether the charts in the previous site are really accurate ones or am not doing it correctly.

Great suggestions Small. Is this something you experimented with already. It does make lot of sense to me.


Kithsiri, there were periods at CSE when ASI was in overbought for months. Apr to June 2010 is one. Again it repeated in Sept 2010. and Early 2011.

So just because RSI is high we do not have to panic. t It does not always mean that people will sell like mad. It depends. There are other factors that will contribute. like sentiments and buying pressure . As with for GLAS, it actually started a 8-10% jump in a day recently. So if there is more buying to come, this can head higher.
Best to watch. To me glass with 6% dividend yield is definitely worth more than Rs 6.2

I think Small suggestions are great on technical grounds to figure the buying pressure and direction.

smallville wrote:A threshold like 85 is alrming...
RSI above 85 means an extremely overbought market condition,

When a market is rising but the trend is not that strong any oversold situation in the RSI brings us a good opportunity to take a profit.
I.e. when trading in stocks, RSI rising above 75 or 80 often signals that a correction is on the cards.

For better results, coupling RSI with ADX would be helpful. Further it could be made extra safe by bringing the Do day MA into the picture too..

When the ADX is rising the RSI tends to get overbought and it can often remain overbought for a surprising length of time.

Then we can have some simple trading rule on entrance;

1. The 20 day MA must be rising (some prefer 5,10 day MA also). It all depends on markets, a back testing would be useful to take the ideal figure.
2. If the ADX is rising then buy if the RSI is less than 85.
3. If the ADX is not rising then buy if the RSI is less than 50.

However RSI can even run up to 100 before a fall is imminent, hence ADX would be a better gauge to find the exit points..

Thanks small, it is very usefull. ?Can you educate us more on ADX. Is it available in DirectFNTWS.

K.Haputantri wrote:Thanks small, it is very usefull. ?Can you educate us more on ADX. Is it available in DirectFNTWS.

Yes it is available on DFN. Average Directional Movement. When ADX crosses 25 it is a positive sign it is believe with other signal Small explained.


Kithsiri,

What are the RSI number you found now?

Kithsiri wrote:From the inception, let me be clear that I am not a Technical guy.
I was looking at the RSI of some of the shares in my portfolio and they are as under
GLAS – 87.58,
RICH – 77.33,
JINS – 81.13,
UBC – 85.76.
Remembers reading somewhere earlier that when RSI is above 70 is to get out.
Is that correct or any other technical indicators are to be seen along with RSI to determine the time of exist?
Can some experts enlighten please ?

My understanding is RSI above 70 shows there will be a profit taking, so price might drop.

so swing and day traders should exit or should not enter.

but if you plan to hold for a medium term then RSI is irrelavant

Smallville & Slstock, you can correct me if I am wrong..

BTW another option is a rather flat ( prices don't fall too much but buyer meeting sellers) cool off period.

Only thing I worry about is panic sellers who already has profit who can sell down to the bone if their mind goes crazy. But then again if there are buyer to meet them then things can even out.

If I sell now, I can get twice more than what I would get in at the end of the month.
Sell now & but buy back more when the price come down (hopefully it will after the X date) is what I am contemplating.
Is it wise or should I hold ?

Kithsiri wrote:If I sell now, I can get twice more than what I would get in at the end of the month.

You expect share price to drop 50% by end of the month?

I presume you are talking about JINS due to X date, So you think JINS will fall to Rs 6.5 ?

slstock wrote:

Kithsiri wrote:If I sell now, I can get twice more than what I would get in at the end of the month.

You expect share price to drop 50% by end of the month?
I presume you are talking about JINS due to X date, So you think JINS will fall to Rs 6.5 ?

No, but I am happy if it touches 9 after that (Yes JINS) so that I can buy back my original amount and half of that with the money I will get by exiting now.

I am also more sensitive about RSI factor.Now i never buy shares at high RSI level.sometime i may miss opportunities, doesn't matter last 6-7 months bare period given us a good lesson & no more panic buying...

Kithsiri wrote:

slstock wrote:

Kithsiri wrote:If I sell now, I can get twice more than what I would get in at the end of the month.

You expect share price to drop 50% by end of the month?
I presume you are talking about JINS due to X date, So you think JINS will fall to Rs 6.5 ?

No, but I am happy if it touches 9 after that (Yes JINS) so that I can buy back my original amount and half of that with the money I will get by exiting now.

i dont think it will down to 9 under current situation, it will be around 10 -10.50....

malanp wrote:

Kithsiri wrote:From the inception, let me be clear that I am not a Technical guy.
I was looking at the RSI of some of the shares in my portfolio and they are as under
GLAS – 87.58,
RICH – 77.33,
JINS – 81.13,
UBC – 85.76.
Remembers reading somewhere earlier that when RSI is above 70 is to get out.
Is that correct or any other technical indicators are to be seen along with RSI to determine the time of exist?
Can some experts enlighten please ?

My understanding is RSI above 70 shows there will be a profit taking, so price might drop.

so swing and day traders should exit or should not enter.

but if you plan to hold for a medium term then RSI is irrelavant

Smallville & Slstock, you can correct me if I am wrong..

I dont say ur wrong but its not always RSI 70.. There are chances that RSI rises even above 90 and take a reverse
Yes this is applicable to trading mostly..

Sls,

I've been using RSI/SAR/MACD as the primary indicators for trading. And RSI found to be a great tool buying on lows in a upward moving trend.
Then I thought that I need an indicator to measure the strength of the trend too, otherwise I'd be a buying and waiting till a greater fools come and buy it from me.. Just like buying an illiquid.

So this is a small workaround on technical grounds for buying and selling that I've been trying to master..

When a market is rising but the trend is not that strong any oversold situation in the RSI brings us a good opportunity to take a profit.
I.e. when trading in stocks, RSI rising above 75 or 80 often signals that a correction is on the cards.

So ADX is suitable for measuring the strength of the trend.

So lets see how this Average Directional Index (ADX) could be used for profitable trades;

When the ADX is rising it usually indicates that a strong trend is on the cards. Means there’s a good chance that we could capitalize on this move..
So waiting for a low (dip) to occur would be difficult to measure due to the fast running market. It can happen in an instant and follow the uptrend in the next moment making the profit maximization a fiasco.
This is where we should enter on the strength of the move.
So now we can introduce some rules for us to trade..

• We know id ADX is rising it indicates a possible uptrend so at the time ADX is rising, we buy when the RSI is below some very high threshold. (say 80-85)

What’s the importance? U must have noticed that we would consider a RSI value over 80 is oversold, and we have no clue whether a reversal w3ould be on the cards. On the other hand we’ve witnessed RSI even goes above 90-100 and reverse so potentially missing the benefits of profit maximization. But the above trading rule forces us to buy even in an extremely overbought market provided that ADX is also rising.

Ok.. What if ADX is flat or declining?

We can postpone our entrace until the RSI is below some a threshold like 35 - 50.
Now on this scenario ADX is not indicating us the trend is strong. Therefore; some additional indicators have to be consulted to make sure that the market has somewhat upward movement.
Else we would be buying a security which has not dipped but has a tendency to dip more.
Now this is where 20 day moving average might come in handy.

So for better results, coupling RSI with ADX would be ideal. And by bringing the 20 day MA into the picture, we’re making our entries more vibrant.

Taking profits;

We know the market is rising but the trend is not so strong, therefore a good opportunity to take a profit is where RSI make a spike.
For instance; 9 day RSI rising above 75 or 80 often signals that a correction is imminent. So if the market trend is not that strong we should probably be happy with small profits.

On the other hand, if the ADX is rising we still can risk with the hope of benefiting from the rising trend. In this case when the ADX was rising we would ignore the RSI signal to take our profit.
Its important to remember that when the ADX is rising the RSI tends to get overbought and it can often remain overbought for a surprising length of time.

On the contrary, when the ADX is flat or declining we must make sure we book profits seeing any upside spike in the RSI. Also, any downward spike in the RSI at this point potentially make a profitable entry point too.

Then we can derive some simple trading rule for our entrance;

1. The 20 day MA must be rising (some prefer 5,10 day MA also). It all depends on markets, a back testing would be useful to take the ideal figure.
2. If the ADX is rising then buy if the RSI is less than 85.
3. If the ADX is not rising then buy if the RSI is less than 50.

Similarly, some simple trading rule for our Exits;

1. If the ADX is not rising and if the 9 day RSI is greater than 75 – Sell.
2. If the ADX is rising and sell if the 9 day RSI is greater than 75 and our prfits is considerable – Sell.
3. Define a stop-loss - Exit when the price goes below the 20 day moving average or when the direction of 20 day moving average turns down..

Stop-loss is a concept that is not available in our trading systems, unlike in developed markets. However the term refers to a practice of exiting with minimal losses when trading goes wrong hence I used that term here.
Remember; RSI can even run up to 100 before an imminent fall, that’s why ADX & 20 day MA has been combined with it to have a better gauge to find the entry/exit points..

Thanks SmallVille.

Thank you Smallville

Please note that this indicator (ADX) only indicates the strength of a trend and not whether the market has uptrend or downtrend. The direction indication comes by the +DI and -DI lines which are associated with this indicator.

The direction of the ADX line is important for reading trend strength. When the ADX line is rising, trend strength is increasing and price moves in the direction of the trend. When the line is falling, trend strength is decreasing, and price enters a period of retracement or consolidation.

When ADX is above 25 and +DI line is on top of (above) –DI line then it indicates an uptrend. When it is above 25 and –DI line is above +DI line then it indicates a downtrend.

In Amibroker, you'll find all these 3 lines overlap making decisions easier but in DFN these are separate 3 lines.




In the above picture;
There are three main lines at the bottom. One is +DI line, another –DI line and the third is our ADX(14) (14 means 14 day) line. Colors indicate each and every line what is it. Also 20day MA has been added to the same chart.

So as u can see I've coupled 2 indicators in ADX chart.. 20day MA & 14 day ADX aprt from +DI & -DI lines..

Then the last chart is RSI chart.

The bold Blue line (ADX line) measures the strength of the trend.. Still we can see its not reached 25. But on the other hand Low ADX is a usually a sign of accumulation or distribution. So what I get from this line is the strenght is getting stronger as it heads up (downward indicates otherwise)

Then the crossovers - when the price was at 2.70-2.800 range +DI line has crossed over -DI line and going up. Surprisingly the RSI has hit 78.36 as of last day close.
The purple color 20day MA line marginally (slightly) heads up and the

Lets bring back my enter criteria to the table and see the matching %

1. The 20 day MA must be rising = Slightly
2. If the ADX is rising then buy if the RSI is less than 85. = TRUE
3. If the ADX is not rising then buy if the RSI is less than 50. = N/A

Only the first two is needed to make a decision cuz as per the AAF chart we've already passed the 3rd criteria so its not applicable (N/A) now.

So I'm not giving a BUY/SELL decision here.

I'm also just testing this so what I feel is RSI can pass 90 while the ADX heads 25+.
3.40 is a resistant level hence Price can mark a pull back to around 2.90-3.0 even. Then we'll have to watch the ADX/RSI directions and strength to enter again.

But better not enter now cuz high RSI & high +DI values have historically signed a trend change too. Since AAF is a new counter the back testings are difficult.

Trade with care..