hey what's up youtube this is foxtail digital
coming to you again with black girl stocks and in this video we're going to be talking all
about the rsi indicator okay so for a while now you guys have been requesting more videos
on stock chart indicators and stuff like that different things on how to use them you know
when's the best time to get in and out how can you use them to make money and everything like
that great i've decided to make a few videos dedicated to individual indicators so we can look
at them one at a time and this is going to be great because we can really dive into each one and
then you're going to have time to fully get the ins and outs of each one without you know worrying
about anything other than just this indicator so we're going to focus and put all of our attention
on this okay but first if this is your first time watching this video please make sure that
you click that thumbs up button it really helps the channel yeah so let's get this video
to 2000 likes also make sure that you subscribe and click that notification bell so that you get
notified anytime i upload a new video for you guys and if you're new to options trading and
you're stuck on what stocks to trade options on or even different option strategies that
you can do like long calls and put plays credit spreads earning report option swings and
so much more there's a lot of things that you can do with options so there's a service called tibio
and they offer amazing stock option picks and they have a great selection of strategies that you can
choose from so make sure to check them out tiplio updates their stock option list literally within
every hour on the trading day and they're going to have the best stock option picks and they make
it so easy for you they give you the option prices they give you the strike prices that you need
to pick and even the best expiration date so please make sure that you check out tiblio i'll
make sure to leave a link in the description below also make sure if you are interested in using
tiblio that you use my link for 20 off of your first month you're welcome okay so let's go ahead
and let's get into it what is the rsi indicator exactly the rsi or the it stands for relative
strength index but the rsi is definitely one of the most popular indicators that uh that traders
use so it's an oscillator oscillator so the rsi is designed to measure a stock's momentum and
that's just how fast and how large was a recent change in a stock's price the rsi can help us find
stock trends entry and exit signals and a lot more than that i won't go into a lot of details on the
actual formula for this because it really isn't important to remember just know that you're
going to have a certain number of parameters or time periods that you'll track the stock's
price changes over time so the normal time period that the rsi comes set for is 14 periods and
that just means that the indicator looks back 14 bars on whatever graph you might be looking at
so it could be the 15 minute 30 minute one hour four hour whatever whatever chart that you're
looking at it's going to look back at 14 bars on that but you can change this to be more or less
than that so you can change your parameters to be more or less than that 14. and i will say that
even though 14 is the default setting that may not be the best setting for your particular
trading normally short-term traders me i'm a short-term trader hello we're going to use smaller
periods i personally like the nine period rsi and this is just going to show short-term movements
in the market i've noticed that shorter periods like the 9 and the 10 are more effective for my
personal training because it shows two weeks of actual stock trading days and you know that
stocks trade from monday to friday excluding crypto and 4x i know you know crypto goes all
day honey and honey she is just dropping girl longer term traders would do better with higher
periods like 25 so after we have your parameter picked out you're gonna add up your average
gains and divide that by the average losses during your chosen time period so just looking at
this little chart right here i have now this is gonna this is old school this is old school method
honey i'm not doing this the computer generates all of this for us so you see here you have your
days okay so you have days here and then it gives you the stock's closing price and what did it
change during that day so on this day was it a gain or was it a loss and so they averaged out all
of these your average gains average losses that's going to give you your relative strength and over
a 14 day period that's what gives it the index so all in all that's all it is honey i didn't want to
get too much into with honey but with that being said how do we actually use the rsi indicator
traditionally new traders learn a way to interpret the rsi by viewing the price as either overbought
and due for a correction when the indicator is above 70 and they see the price as oversold and
due for a bounce back upwards honey bounce back they're waiting for it to bounce back up and this
is when the indicator is below 30. this is the old school method honey and this was originally
observed and introduced to us in 1978 by mr welles wilder honey yes i'm doing too much
according to mr wilder's findings in a strong market uptrend the price will often reach 70 and
above for long periods of time and for downtrends the price can stay at 30 or below for a long time
also so in a strong uptrend the general idea of overbought and oversold levels are based on supply
and demand and they can be right a lot of the time but they may not give the most precise signals
to invest with and i've said in earlier videos that it is an outdated method it is old it is
outdated i'll try this back in 1978 honey i wouldn't even hear outdated method and there's a
better tweak that you can do to the rsi depending on the overall stock trend and this comes from
the famous technical analysis miss constant brown honey yes back in 2012 so while they were talking
about the end of the world honey miss brown was over here writing books honey changing all of our
lives constance the rsi performs better when you alter the overbought and oversold zones oversold
zones that we've all used for so long so this is what we what i've always preached to you the trend
is your friend find the stock trend that's the first thing that we want to do is find the trend
this is going to be a little bit different in a bull market the rsi ranges for overbought zones
we're going to change those from 70 to 80 to 90. so it's going to be a range between 80 to 90 for
overbought and for oversold zones or the support area is going to be from 40 to 50. so this is
in an uptrend in a bear market the rsi ranges are going to be oversold at around 20 to 30 and
the overbought zone or resistance is gonna be 55 to 65. so let's see how these changes affect our
trading signals okay so this is what we're gonna do all right so right now we are in thinkorswim
and this as you see here this has all of my old settings on here so i'm going to remove all of
this and let's just put the rsi back on here this is our regular rsi settings so this is 14 you're
going to have your overbought at 70 and oversold at 30 and it says wilder is great we just talked
about him okay so let's just put that on there take all those off so you see everything you
see the rsi here 70 and 30. okay so this is uh cleveland cliffs hi miss cleveland how are you
um this is clearly an uptrending stocks making higher highs and higher lows great this is what
the stock is giving us this is up trending and we see periods here where the stock was a little
bit low and it hit this period here where it's you know overbought and then it drops low but as
you see here the stock is continuing to go upwards so what's going on with that so let's go ahead
and let's change these parameters and see what that's going to do for us so we're going to go up
here now this is in thinkorswim you can do this in any platform but i'm just going to use it think
or swim because it's easier for me and the charts look great so i'm going to change overbought
to 80 oversold i'm going to move it up to 40. okay so as you see here that definitely changed
the look of what we had going on so you see here it's a little bit overbought here i
don't know this is very low considering we have a lot more room to grow here so what i
like is at a low right here this gives me a better signal i would get in here and i would hold it
until it actually really became overbought and you can sell here or you can continue to hold on to
it like i said but i do i do like the signals that this is giving because even just right here when
it's at its lowest point right here this would this would be a great time to get in but before
if it was lower than that then we would wait all the way back here and then it's that still
wouldn't have been the best time to get in because you see it kind of went up and then it dropped
a little bit lower but it continued upwards so this is just giving me a better a better buy
signal another great trick i think i'm going to talk more about this at the end of the video but
another thing that you'd want to do is don't just wait for it to actually reach that point wait for
it to reach that point and bounce back from that so i say that because you see how it did drop down
here what is this this is back on the first okay first of march so it did drop low came up again
drop low but it really didn't start to move until it really bounced off of that so i would say
set your buy buy in area not as soon as it reaches the zone but once it comes out of the
zone because that's showing you that it is changing trends and so how about let's look at a
downtrending stock so yeah right now tesla is very much so in a downtrend all right so let's set it
up for a bear market which is what we're looking at so for the bear market we're going to change
it a little bit so for the overbought i'm going to put it at 55 30 to 20. and so this is going to
be our downtrend so you're going to change this for each of the trends and you'll see here we zoom
in you see here this is where the price was at is high at a low for that time came up a little bit
so even on this bounce let's see just right here see look at that bounce up this didn't even didn't
didn't even go up to the the 55 on a down trending stock on a downtrending stock you're definitely
going to want to bring your parameters in a little bit closer because right here this peak is at
51. now i think you really see it a lot more on this downtrending stock than on the uptrend
but you see here it's not always going to go up to that that 70. on a downtrending stock is not
you see it did it right here 82 is pretty high so even though the new overbought and oversold
conditions are literally they're game changing that doesn't mean that everything that we
know from the earlier methods get wiped out so everything isn't a loss from that divergences
are still something that you're going to want to watch for so what is that what's a divergence
essentially you're going to get divergencies when the highs and lows of a stock price
move in a different direction than the highs and lows of the rsi indicator um so
you look down on the rsi and you can see just like a stock chart you're going to have
higher highs for your rsi indicator and you'll have lower lows so it's going to have trends
too and you're going to have a bull and a bear divergence with a bullish divergence the stock
makes a lower low and the rsi is making a higher low so the stock price is dropping but the rsi is
actually increasing and on the opposite of that with a bearish divergence on the other hand the
stock is making higher highs and the rsi is making lower highs so it's dropping um and the stock is
going up okay so what this is telling us is that our momentum for this trend is weakening and we're
probably going to have a change in direction this is why the rsi can stay overbought and oversold
for a long period of time when a stock has a lot of momentum in either trend direction divergences
can help give traders a heads up when a bullish or bearish swing might reverse but they can also
let you know when a trend might continue so it'll let you know when a trend is changing but
it'll also give you a little a little a little hint to let you know that this trend is actually
probably going to continue for a while longer and these are what we call the hidden divergences
so a hidden diverges it's just lightly letting us know that the trend is going to continue and
you're only going to use the signal if the hidden divergence is a part of the dominant overall trend
and so if you're looking at a stock price i say dominant trend i'd say is least going to be
at least one month worth of price movement so one month time frame that's going to give
you a dominant trend one to three months so and the last thing that i want to say is keep
an eye on the center line all oscillators like the rsi the stochastic and the macd indicators they're
going to have a center line but just know that the rsi center line is going to represent a value
of 50. so a lot of traders use the center line to help indicate if there's going to be a change
in the trend so if the rsi is above 50 then the momentum is considered to be up and traders can
look for opportunities to buy in that market however a drop below 50 would indicate a new
trend is developing and if it drops below the 50 then that could be an indication that a
bearish trend is starting to develop here as you see when i drop below that 50 line there so
that's just an example that that center line kind of acted as a support for us right here it broke
through there and you see a change in the trend so when the momentum shifted the rsi is going to
drop below the 50 signaling a bearish reversal so knowing this you would know when would be a
good time to exit along position or just look for different entries when it starts to change into a
new direction okay so yeah that's pretty much all i have to say about the rsi indicated there's a
lot that you can do with it it's a great indicator to use but of course it's best used when you match
it with trend lines macd indicator and your moving averages that's where you know you're gonna get
the best information from your relative strength index okay i hope that this video was helpful
if anybody you know is interested in using the rsi indicator make sure you change it depending
on what overall trend your stock is in please make sure you click that thumbs up button for
your girl it really helps the channel also make sure that you subscribe click the notification
bell so that you get notified any time i upload a new video for you guys thank you guys so much
i'll catch you on the next video and all right you