RSI is called a lagging indicator. But you can certainly profit from it. In Sri lanka a lot of people say to BUY when the RSI is below 20 and Sell when it is above 70. If you had traded it that way you would known that it is easily said than done. However this lagging indicator is not to be ignored. How can you make use of it? This is how.
Step 1 - In the ASI chart you wait until it comes down below 20, like in the figure 1
As you can see in the Chart the RSI has gone down below 20 on 4 occasions during this year. The dates are 11.01.2016, 02.03.2016, 29.06.2016, and 18.11.2016.
Step 2 - Choose your stock that you would want to trade, then draw vertical lines on these days, like in the figure 2.
Step 3 - Watch for the swing low of the Stock's Price line. See figure 3.
As given in the Figure 3 all 4 occasions made money. The profit you would want to make is your call. But it is very very important to stick to the stop loss.
It is not only the swing low that can be combined to the RSI, lets see some others in the future.
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