How To Filter Out RSI Indicator Fake Signals

✅ Please like, subscribe & comment if you enjoyed - it helps a lot!

This time we look at using the RSI indicator as a filter. This is the Relative Strength Index which gives some indication of the strength of a financial security relative to itself. It’s in the family of indicators that are called oscillators and usually mapped out below the price chart with a range that goes from 0 to 100%. Other oscillators such as the stochastic could be used instead.

The idea of an oscillator is that its value usually goes between 30% and 70%, or sometimes 25% to 75%, and when it goes outside these bounds it indicates that the stock is overbought or oversold. Having said that, in a trend you may find that the oscillator stays outside these bounds while the trend continues, so in itself being outside the normal range is not a reason to enter a long or short trade.

But the way we are using the oscillator this time is as a filter, and that is to make us hesitate before going into a trade where the elements are not all aligned. It’s to keep from getting involved in a chart where everything isn’t in our favour. So regardless of how much we may think we want to take a long trade, if the oscillator is above say 70% it would not be a good time to do so.

Similarly, although we wouldn’t necessarily use the RSI as a trigger for a trade to happen, we can take a low value of RSI as allowing us to place a trade. If the trend is a strong uptrend, it’s unlikely that the value will come down as far as 25%, but we can at least look for the value to be down to say 45% before we contemplate taking a long trade. Depending on our trading plan, if it goes lower on a retracement in what is otherwise a strong uptrend we may decide we definitely want to become involved.

Using a filter to decide when not to trade will almost inevitably mean that you are making fewer trades. Some of those trades you may look back on as missed opportunities, particularly if they work out as you thought they might. But what we want to concentrate on is increasing the probability of good trades, and that means eliminating suspect trades, those that may tend to work out less often than others. By using the various filters explained here, you should keep down the number of bad trades that you suffer.

Related Videos
The Stochastic Indicator: When it Works, When it Doesn't & Why‎ - Part 1 📈
Stochastics Trading Strategy Part 2 📈
How to Profit from using the RSI (Relative Strength Index)? Part 1 📈
RSI Indicator Trading Strategy Part 2 📈
How To Filter Out RSI Indicator Fake Signals
Multi Time Frame Analysis With Oscillators

[ukspreadbetting]

👉 We are seeking more contributors who can produce great video educational content about trading for our channel. If you think you have what it takes please get in touch by sending a message to (remove the AT and substitute by @).
👉 It seems a lot of our viewers are non-subscribers. Make sure to subscribe to our youtube channel as we upload regular videos! If you hit the “Bell” icon (🔔) you will receive a notification on youtube every time that we upload a video on our channel. Bell icon hitters are super fans of our channel 🥰

[Yonghing]

7 months into trading and still learning new things everyday, thanks for sharing.

[nyny]

U deserve a million subscribers after this its change the game for me

[janklosowski]

Oscillators work the best on the market going sideways or up. They fail badly on the bear market where relative lows are followed by lower lows.

[icyboyz]

Using RSI in combination with Stochastic RSI is good

[dannytran]

Another great video...can you please do a video on crypto scanners..i would would like to learn from you how to pick coins to play

[vertyTrades]

What RSI period parameters are you using? I think by default it's something like 14 period, but interested if you tweak it?

[vvboni]

... fake-out problems? ??? ...then one must NOT use overbought and oversold levels... use custom RSI indicator that may be using some type of Kalman or Jurik filters or any adaptive type of algorithm.

[lisemariecaron]

i know som1 who's profitable, just with rsi, and fibonacci and "fundamentals", news, its all, quite wierd to be profitable with so less indications

[nyny]

I'm about to try this with a stop loss under the trend line

[sund]

Holy molly No bull shit in this one. Straight to the point. 10/10
Thats rare to see on YouTube today.
That gave You a sub.
Keep Up with the No bull shit :-)

[cirtey]

What is your name? Do you have twitter account so I follow you?