Tuesday, July 7, 2009

The RSI shift

This is something I learned from Frank Barbera, the Gold Stock Technician, and I find it useful so I thought I would pass it on. I posted about a set-up for the XLF ETF as a short trade before and I still think it is a great short at current levels. The RSI shift concept relates to how the RSI moves during bull and bear thrusts.

When in a bullish mode, the RSI likes to stop around 30-40 at the low end and then rise to 70-80 on each mini-upward move and mini-correction/downward move. When the chart turns to a bearish posture, the RSI peaks around 60-70 and likes to plunge to the 20-30 range on each mini-decline and mini-correction of the decline. In other words, the "normal" RSI range is different for a bull move versus a bear move.

Like any technical indicator, it is completely worthless in isolation but can add weight/confidence to a trading decision and can work on a weekly, daily, or even an intraday chart, although time frames of less than 15 minute intervals are beyond my area of interest as I still have a day job (knock on wood...). The RSI shift from the 30-80 bull range to the 20-70 bear range can be a clue to directional changes as they are occurring.

Here is the 60 minute intraday chart of XLF demonstrating this RSI phase shift concept in real-time:

Just another widget for the trader's toolbox...

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