STOP Using The RSI Indicator! You Do It Wrong! MUST Watch Video To Use It Right!

Hello traders, Vladimir here from Home Trader Club. In this video, stop using the RSI in the wrong way. Another amazing indicator, powerful indicator for different market conditions which been misused by so many traders. One of the mistakes is solely rely on indicator read If it's extreme conditions, then definitely it's going to be a sell or a buy, and/or using that in an absolutely wrong way in trending conditions. So in this video, I want to clean all the doubts about the mistakes of using the RSI indicator and how I consider using the RSI in the best way. Let's begin. Before we continue, big thanks, thumbs up to 8K Broker for supporting our community. And to enjoy all the amazing offers we have with 8K Brokers, please refer to the link below this video in the description. You can get your access to Home Trader Club, private mentoring sessions with me, Trading systems, trading indicators directly from the marketplace, live trading room access for short-term trading, anything of your choice with the link below this video in the description. So before we continue, if you are absolutely new to the RSI indicator, the Relative Strength Indicator, I really highly recommend you watch this video you can find right now on the right top corner of this video. A tutorial to the RSI. Understand what it is, how it was created, what does that represent. It's a pretty old video of mine, but it's very, very, very, very useful and of course relevant because indicators don't go anywhere. So there are many mistakes traders do with RSI, and I want to mention some of them. So first mistake, as we will see, Is, you know what, let's in that case I will reduce the MACD a little bit so you can see the RSI cleaner. First thing is by default RSI, I'm using the default settings RSI 14, but for my extreme levels I am using 80 and 20. And many traders use the 70 and 30 in the wrong way, which I will explain in a moment. So by itself, the RSI, by its formula showing relative strength conditions compared to X of the bars, doing its mathematics and giving us the, the current relative strength compared to all the previous bars, waves, moves, you name it. That helps to understand if the current market conditions is in in a trend by holding a sequence of higher highs, higher lows, if it's a downtrend or uptrend, if it's ranging or if it's trending above or below 50 while crossing up or down and holding above that. But with the extreme conditions, they are not meant to be traded, uh, in a way that you trade anti-trends or against the trend. Meaning, if you see— and that's what many traders do— if you see the price crossing above 70, it's not necessarily mean it's a sell, especially if you are in an uptrend which is going with multiple timeframes. So that's the first mistake traders do, rely on RSI is above 70, it's a sell. RSI below 30, it's a buy for sure. Because well, that's what RSI does. So these conditions can work in more ranging markets. Okay, when the market will be ranging, let me try to show you some example like here. Okay, when the market is ranging and there is no certain trade involved, then you can really enjoy conditions when we are overbought or close to overbought. As we can see, all these cases, right, very close to that, or oversold right on the bottom, right, very, very close to the, uh, 70/30. Within the ranges, this could be very helpful thing, but when the market gains a trend, you would never get anything here with all these reads of overbought conditions, especially when you just check one time frame. It could hint that some slowdown will happen and so on and so on, but that's not enough as a read to understand that that's it and the market is going to change the trend or going for a deep correction. Avoid these mistakes. They, they will cause a lot of pain, a lot of troubles. So another mistake that traders do with RSI is not relying on you know, the original numbers. Why? So RSI 14 is more than enough. If you change the numbers— 21, I saw 30, I saw people doing like RSI 7 or 6— so the bigger the RSI, the more bars it will compare the current trends to. And of course, the changes on the RSI levels and the fluctuations of the waves would be much, much slower. And if you drop the level of below 14, you would see much more noise in it. For me personally, what's good for the creator, definitely good for me. The only thing I change for myself is for trending conditions. Extreme levels to 80 and 20 and not 70 and 30. 70, 30 could be good, very good in ranges, but in more trending conditions, I love the 80 and 20 as they represent more extreme conditions. And when it comes to divergences, which is my style of trading, then it's very important to find the first spot to be more extreme than average. Makes sense? So this is why I changed that, and I don't— I honestly don't recommend to change the RSI for the purpose it's supposed to be. So all you have to ask yourself, what are you trying to get? More noise or less noise? So for me, 14 is pretty much classical. It's good for the creator, who am I to argue? Another mistake the traders do with the RSI is simply trying to work with the 50%— with the 50 level, not percent, sorry. And that's like, if it crosses to the downside, it necessarily means we are going for the sell. If it crosses to the upside, it necessarily means we are going for the buy, and so on and so on. And so on. So once again, I do not— honestly do not recommend relying only on a specific read because indicators indicate, price dictates. The combination is the king. Okay, so there are millions of good ways to use the RSI. Over the last years, I created several videos Which I uploaded to my channel. Right now, on the right top corner of this video, you will be able to see them. I'll make them one by one recommendations which videos to use. RSI could be used with MACD in several ways. RSI could be used for a divergence, and I honestly recommend watching these videos if you didn't watch them yet in order to get familiar. With these conditions and situations. But now I want to show where and how the power of the RSI could be for trending conditions and for the ranges. For that, I will take one of the trades we did and executed in Home Trader Club. Okay, so this is our members area. If you are not familiar with what Home Trader Club is, This is the DAX for a sell. We went for a sell here and the move happened to be all the way down. But I want to explain the logic because you will see here RSI in use in anti-trending conditions and in ranging conditions. That's why I chose this example specifically because it will explain the best usage of the RSI for both cases. You will see that where we triggered, RSI was right around the 70. Okay, so you will see how it can help us in ranging conditions. So let's go to the DAX and I will— where is my DAX here— and I will explain what do we have here. So the RSI in that case, as you can see, we are You don't need me to tell you that, but you can see we are in clear trending conditions. Okay, when there is trending conditions, we require more than 2 higher highs and higher lows if it's an uptrend, or lower highs, lower lows if it's a downtrend. What I want is in trending conditions, yeah, at least one of the highs, because we are pushing to the upside, at least one of the highs to be above 80, or at least very close to 80, as you can see at that stage. Now, I would not use all these levels where it is around the 70 before it actually creates the sequence of higher highs, higher lows. The first place where it did create the sequence was here after breaking this, the second high. That's the only place where we got clean 3 waves. That's the only place to start looking for, aha, now we are in a potential moment of the overbought conditions. Because remember, we are now in trending conditions. We are not in a range like here. Okay. And the difference between the trend and the range is that in trend, you have a clean sequence of highs and lows to the same direction. Here in range, You don't have that. So what we want in that case is, after you got the 3 higher highs, higher lows, to check that at least one of the highs was above 80. And you can see that this high was above 80. Even the first high was significantly above 80. So the last high, what I want, it could be now below 80, no problem, but I don't want it to be higher than the first— than the last spot Where it was 80. So in that case, this is the second spot. I don't want it to cross higher. Why? Because in that conditions, we start to create a bearish divergence. Why? Overbought conditions, the market still trying to push, but it didn't push enough. The relative strength after this rally is lower, smaller than the one before. This is a significant sign, and that's the moment where I say, aha, something starts to happen. So that's the place where I— let's put a vertical line so you can see how it all develops on the next time frames. When we go to the next time frame, the 4-hour chart, we will see the same condition. This is why it's my favorite way to use the RSI. Okay, so you can see here we did have clean trending conditions, right? Higher highs, higher lows. Come on, when my pen is moving without me. So once again, after and only after we got more than 2 higher highs, higher lows in trending conditions, in our case this is an uptrend, then I start to check the condition where RSI was above 80. At least one of the points, and at that point here, and the second high on the chart. Let's just take a circle. At that point, RSI went above the 80. Pay attention. I still don't use the 70, and I'll show where I use the 70. Okay. So from there, I check. Okay. Now the market made another high, but RSI does not make another high. I mean, it doesn't make higher than higher high than the one before. That creates conditions of slow down. Now it's a multi-timeframe slowdown, not one, but multi-timeframe slowdown. And the last thing I'm gonna do is to drop to the lower timeframe to find the conditions for the entry. So the ideal condition was actually here, okay? And exactly as it was on the 4-hour chart, it was on the 1-hour chart. From the same trending conditions, here we were overbought above 80, but here we are overbought below 80, or below the first high. So this is super significant. Now this is the ideal entry zone. So can you rely only on the RSI to attack? As I said before, I always prefer trend, which is price action with indicators. Indicator indicates, price dictates, combination is the king. So the best way in that case is at least to wait for the most recent trend line to be broken Or for the market to flip that trend from the place where it was making the higher highs to the place where it starts to make lower highs. This is the ideal entry. Now, I personally missed this part. This is why I was looking to trade it at that point. As I showed you before on the one we've had here in Home Trader Club, it was that, that, that was the peak. Again, I missed this one. I would trade that if I would not know, but again, you can't be everywhere, right? In that case, I missed the opportunity there, but I want to show why at that point I did use the RSI and the convergence, which I will explain in a moment, to get my aha moment and to go for my sell. So, uh, we already realized that the daily and the 4-hour and the 1-hour gave the trending conditions. Note what starts to happen on the 1-hour chart. We did flip the structure and we started to make lower highs and lower lows, and then we started to make lower highs. Sequence of lower highs, lower lows, lower highs, lower lows happens when? In bearish market condition. After that, we got the pullback, but the pullback is bounces of a key zone. What is the key zone? I love to call that supply area where sellers were in control. Think about it this way: in this downtrend, where the sellers took control from? Here and here. In the previous uptrend, we saw where the sellers took control? Here and here. So this is the last peak, that's why we don't use that, right? But this level And these levels are key. What happens now is we did see here bearish trending structure, phenomenal read, together with RSI overbought conditions and flip on a daily, 4-hour, and 1-hour. And 1-hour now makes the price. So any pullback that will provide Over both conditions gives the aha moment and opportunity for the sell. So what I love to see in that case, remember, in trending we use RSI 80, right, or 20. But now we are in a bigger scale here, right, from higher highs to lower lows, but we are in between This wins, which means this whole thing—not just these three waves—but the whole thing here stands within ranging conditions and is holding this area of supply that we saw before. And now remember what levels could be used in the ranging conditions—the seventy and the thirty. Once we reach this over. Both conditions with 70 and 30, which happened here, 70, this is your green light to go and look for the sell. Why specifically these combinations are my preferred way to work with the RSI and the price action, not solely, is because they usually give best risk-rewards. As we saw on the, um, on the trade, the previous— the first target zone would be around the previous swing lows. The next one would be based on the 4-hour chart Fibonacci, and same with the next one. They give the best risk-reward, and when you go with these levels, that's your opportunity to understand that, aha, That could be a great risk-reward to here and then to the next levels we just saw. Okay, and that's your main thing here, to spot this opportunity, because the best opportunity is not only what happens on the chart. The best opportunity is the one that has enough room or potential to pay you. Otherwise, who cares about what's going on on the chart? You have to make sure you that what you see on the chart is actually, uh, has the probability to pay you. Okay, so that's how I love using the RSI properly together with the price section, and mainly how I do not like to use RSI and why so many traders Trying to use RSI and fail. When you try to do that solely, it could work here, there, but you know, as a strategy, it will continue to fail. And of course, when it comes to the buy, it's absolutely the same, just mirrored. Instead of the 80 level, it would be with the 20 level, right? Instead of higher highs, higher lows, it will be sequence of lower highs, lower lows. Everything the same. Just mirror. So I hope I gave you a little correct perspective about the wrong and correct usage of the RSI. Please watch these videos I recommended during this video if you are not familiar with all the terms I described, and I want to invite you if you want, of course, to. Enjoy all our comprehensive, complete trading education, to join Home Trader Club. Once you are in, you go to education, you have your courses for beginners, for advanced. You have real-time trading ideas, you have real-time trading journal, which is this one which we are track recording. You have a comprehensive media zone here, and so much more. So if you want to gain proper trading education, I welcome you to our trading family, the Home Trader Club. Thank you for watching. If you find value in this video, please don't forget this like button. Feel free to share, uh, as this one is open for the community. And if you are new to our channel, please consider to subscribe with the subscribe button below this video. In the you will see the button there subscribe button below this video. 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