ANZ RSI

RSI (Relative Strength Index) measures the speed and magnitude of recent price changes on a scale of 0-100. It shows whether a stock is overbought (>70, risen too fast) or oversold (<30, fallen too fast). It helps identify potential reversal points.

Don't buy just because RSI reaches 30. Wait for RSI to cross ABOVE 30 from below. This confirms the selling is exhausting and buyers are returning. Buying while RSI is still falling is like catching a falling knife.

In strong uptrends, RSI can stay overbought (>70) for extended periods because buying momentum remains strong. This is why adding a trend filter helps - avoid selling overbought RSI in uptrends. RSI works best in range-bound markets.

Start with the standard RSI(14) with 30/70 overbought/oversold levels. This is the most widely used and tested setting. It provides a good balance of signals and reliability. Avoid changing settings until you have experience.

For oversold buy signals, place the stop below the recent swing low (the low when RSI was at its minimum). For overbought sell signals, place the stop above the recent swing high. Alternatively, use 2x ATR from the entry price.

Divergence occurs when price and RSI move in opposite directions. Bullish divergence: price makes a lower low but RSI makes a higher low (potential bottom). It's important because it signals momentum weakening before price reverses, giving an early warning.

Use the 50 EMA as a trend filter. Only take oversold buy signals when price is above the 50 EMA (uptrend). Only take overbought sell signals when price is below the 50 EMA (downtrend). This avoids counter-trend trades that often fail.

Use RSI(9) for intraday trading - it's faster with more signals. Use RSI(14) for swing trading (1-10 days) - it's the standard balanced setting. Use RSI(21) for position trading - fewer but more reliable signals.

Check weekly RSI for directional bias (above/below 50). Only take daily signals aligned with the weekly direction. Weekly oversold + daily oversold = the strongest buy. This multi-timeframe confirmation improves the success rate significantly.

For oversold buys: bullish engulfing, hammer, morning star, or a higher low. For overbought sells: bearish engulfing, shooting star, evening star, or a lower high. Wait for these patterns before entering - it improves the win rate.

A-grade: 3+ divergence points, RSI in an extreme zone, trendline break, volume confirmation. B-grade: 2 points with some confirmation. C-grade: 2 points, RSI not extreme, minimal confirmation. Trade A and B grades; be cautious with C grade.

When IV is low at oversold: buy calls (benefit from IV expansion + the directional move). When IV is high at oversold: a bull put spread (collect elevated premium with defined risk). Match the option strategy to the IV environment for best results.

Define precise rules: entry (RSI cross + filters), exit (RSI target + stop + time), position sizing (risk-based). Backtest 5+ years, use 70% in-sample, 30% out-of-sample. Target: >55% win rate, >1.5 profit factor, <15% drawdown.

Allocate 20-30% of the portfolio to RSI mean reversion. Within that, limit single stocks appropriately and keep the banking sector within limits. RSI complements trend following - they work in different conditions. Adjust allocation based on the market regime.

Reduce when: ADX rises above 25 (trending market), multiple RSI signals are failing, drawdown exceeds 10%, or market volatility spikes (ATR > 1.5x normal). Shift capital to trend-following strategies in these conditions.