Article RSI Indicator Filter

10/22/2019 Indicator Filter | Online Trading Academy
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INDIA MARKETS
Indicator Filter
BRANDON WENDELL APRIL 2, 2013
Successful traders rely on reading price movement itself in

order to find and manage trades. Novice traders that often
lose money depend on technical indicators to decide whether
to buy or sell. Indicators are derivatives of price and/or
volume and are therefore lagging. Our decisions are to be
based on price itself and the indicators can be used to help
support our decisions but should never be taken as the
decision maker themselves.
https://www.tradingacademy.com/lessons/article/indicator-filter/ 1/5
We can still use some technical indicators to filter out

marginal trades and to assist us in determining the strength
of the trend. When we have trend strength increasing, we are
more likely to break out of the supply or demand zones and
continue in the trend. However when the trend shows
weakness, there is a higher probability of a bounce and either
a retracement or reversal.
The key thing is to use the indicators correctly. Most books on

trading are regurgitated notes on classic trading techniques
that may work from time to time. We can’t make money from
time to time and need something fresh and more reliable to
depend on. That is why I am thankful for the instructors I
have had as a past student and now work with at Online
Trading Academy. They offer real strategies that have
consistently worked in the markets.
Those of you who have been in my live courses or in my

Extended Learning Track have seen me use a popular
technical indicator with certain modifications. You are
probably familiar with the Relative Strength Index or RSI. It is
an oscillator that measures the strength of up or down moves
in price relative to the stock’s previous price movements. The
typical readings for this indicator are 70-30. A reading of 70%
means that the stock is overbought and likely to drop soon.
The RSI crossing below the 70% line is sometimes taken as a

sell signal. Conversely, a reading below 30% shows the stock
to be oversold and perhaps ready to rise. A buy signal is said
to be generated when the RSI crosses above 30.
The problem with using the traditional signals of the RSI for
buying and selling is that they will usually come after the
price is moving away from supply or demand zones. To have
low risk, high profit and high probability trading opportunities,
we must buy at those demand zones and sell the supply
zones. So how can we use the RSI when it is always giving us
late signals? Well I look to use it as a filter to prevent me
from taking trades that have a lower chance for success.
In a strong uptrend the RSI will typically use 40 as a support

level. There are retracements downward in an uptrend, but as
long as the RSI does not dip below 40 when price retraces
then I am likely to trust my demand zones to buy Should the
then I am likely to trust my demand zones to buy. Should the
RSI move below 40 during a retracement, then price will be
less likely to make new highs on the next impulse up.
When price is in a strong downtrend, the RSI will not rise

above 60 when prices retrace up to supply zones. Should the
RSI move above the 60 when price is moving up to the supply
zone, then it is unlikely to make new lows once it starts to join
the trend down from that supply zone. This means I would
have less reward potential in a short trade. I may want to look
for a better opportunity.
You should only trade using the supply and demand zones to
enter the dominant trend. You may also choose to add some
technical indicators to your chart to filter trades. You must
remember that they are only confirming your trading
decisions and should never be used to make trading decisions
decisions and should never be used to make trading decisions
themselves.
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. Reprints allowed for private
reading only, for all else, please obtain permission.
APRIL 2, 2013 ISSUE
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10/22/2019 Indicator Filter | Online Trading Academy

Sign in to My OTA Create an Account

Lessons from the Pros

Successful traders rely on reading price movement itself in

We can still use some technical indicators to filter out

The key thing is to use the indicators correctly. Most books on

Those of you who have been in my live courses or in my

The RSI crossing below the 70% line is sometimes taken as a

In a strong uptrend the RSI will typically use 40 as a support

When price is in a strong downtrend, the RSI will not rise

DISCLAIMER This newsletter is written for educational purposes only. By no means

APRIL 2, 2013 ISSUE

Join over 170,000 Lessons from the Pros readers.

Sign up for our award-winning

EU Privacy Notice Site Map

Copyright © 1998 -2019 Online Trading Academy

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