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Monthly Journal: Traders' Insights Wanted!
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bullrider_21 joined discussion · Jun 19, 2023 08:42

RSI

Beware when somebody said that RSI can't be used to show that SIA will fall. He used a lot of theory, but not much understanding. My article will prove him wrong.
Relative Strength Index (RSI)
The RSI measures the speed and change of price movements. The RSI moves up and down (oscillates) between zero and 100. When the RSI is above 70, it generally indicates overbought conditions and the price is likely to fall. When the RSI is below 30, it indicates oversold conditions and the price is likely to rebound. The RSI also generates trading signals via divergences. We can also use the RSI to identify the general trend.
Nobody talks about RSI without mentioning the values 70 and 30. But it's possible for the RSI to rise to nearly 100 or fall to nearly 0 before the price reverses. So the RSI is not 100% accurate. This also makes TA not 100% accurate. The RSI must be used with other technical indicators to confirm the reversal.
The RSI is a technical indicator. It doesn't depend on a stock's intrinsic value or macro factors.
Fig. 1. SIA
Fig. 1. SIA
On 15 Jun 2023, the RSI for $SIA(C6L.SG)$ reached a very overbought value of 92.6. This indicated a high chance of price reversal. Indeed the price dropped from 8.05 the next day and continued falling to 7.48 today. That's a drop of 7.08%. It may continue dropping. Whether it's just a pullback or a larger correction, it's not known yet. On May 22, it was also very overbought with the the RSI at 88.6. This time, the price pulled back, consolidated and continued upward.
The closer the RSI is to 100 or 0, the more overbought or oversold the stock is, the more likely the price will pull back or reverse. It doesn't matter whether it's short term or long term, uptrending or downtrending.
Even before analysts downgraded the stock to fully valued or sell, we can already use TA to predict the fall in price.
Fig. 2. LS 2.
Fig. 2. LS 2.
In Apr 2023, the RSI for $LS 2 Holdings(ENV.SG)$ fell to a very oversold value of 10. The stock reversed from downtrend to uptrend and rose from 0.07 to 0.163.
Divergence
Fig. 3. Frencken.
Fig. 3. Frencken.
In Aug- Sep 2021, $Frencken(E28.SG)$ was in an uptrend but the RSI showed bearish divergence. The momentum was waning. If you just used the price or MA5, you would have obtained a false buy signal. In Sep, the price followed the RSI and went into a downtrend. The same is true for a bullish RSI divergence. The price will reverse from a downtrend to an uptrend.
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bullrider_21
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Follow me to get useful analysis, learn TA and make profitable trades. Maximise profit 利润最大化
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