How do you determine the right period to use for RSI? I've heard the traditional 14 period may not work so well for day trading. Any idea?
First try to think about this? Why should the RSI make sense as an intraday indicator when it does not make sense as a daily indicator? When I first started trading I met an experienced trader through a friend and one of the advices he gave was: "Beware the RSI. This indcator has transferred the most money from the pockets of retail traders to the pockets of professionals."
Yup. The point being that such indicators (MA's, RSI, momentum) you should be able to see with your naked eye, sort of. The problem is that if you use the RSI at some point you will start to assume that automatically it means that if RSI is overbought that prices will go down and vice versa, which happens but not always. Indeed I would beware the RSI. I also think that RSI makes more sense as a daily indicator especially if you have a fast and slow one, but still not great.
There's no such thing as a "fast" or "slow" RSI. Anyone who's taken the time to slap two of them on the same chart with different lengths can see that the shape of the indicator is preserved. It's the amplitude that gets attenuated with the longer period.
1) Don't use it. You'll get random results with it, not consistent results. :eek: 2) If you still insist on using it, use a 1-period interval. You're less likely to be deceived by the "indicator" that way.
I also don't like RSI. In my opinion Stochastic or Schaff give much better signals. But if you persist on RSI, you can find the best settings by testing in Excel. Here is an article about RSI and there is a link to the Excel section at the very bottom: http://www.alltrading.info/technica...nical-analysis/85-rsi-relative-strength-index
There is no one best period. It depends on the market. That's why some people use adaptive indicators, but they have their own shortcomings. For day trading, it depends more on the length of bars you are using than the indicator period. Do yourself a big favor and do plenty of backtesting before you depend on an indicator-based approach. The problem with ovrbought/oversold indicators like RSI and stochastics is that they work brilliantly in some market conditions but will destroy you in others. There is no reliable way of telling prospectively which type of market you are in.
Try the 2-Period RSI, it was written about in Larry Connors book: "High Probability ETF Trading". The best and possibly the fastest way to backtest many of these methods is to use a mysql database and create php pages for the strategies. When done this way, you can backtest approximately 40 years of data in less than a minute.
The RSI, the most interesting indicator around and also the indicator that is used in the wrong way by most people! There are very few around that know how the RSI works! Most people think below 30 is oversold and above 70 is overbought, WRONG!!! You can better buy when it is above 70 and sell below 30! And about what period you should use, the 14 and nothing else! The RSI isn't created to be used in a 5 period or a 2. The RSI is a 14 period indicator that shows exactly when we are in a bullish area and when in a bearish area. By the use of channels it leads the way. It show high resistance areas, price targets. But it does NOT tell you when we are overbought or over sold!!! So please throw away all TA books that say that it displays oversold/overbought areas but those book tell you alot of bullshit! So please, no offence words about my lovely RSI anymore! You only say them because of your lack of knowledge!