BP RSI Strategy

RSI (Relative Strength Index) is a momentum oscillator ranging 0-100. It measures the ratio of recent gains to losses. RSI > 50 means gains dominating (bullish). RSI < 50 means losses dominating (bearish). Standard period is 14 bars.

RSI below 30 = oversold (price may be extended low, potential bounce). RSI above 70 = overbought (price may be extended high, potential pullback). These are not automatic buy/sell signals - wait for confirmation.

RSI can stay oversold/overbought for extended periods in strong trends. Reversal candle (hammer, engulfing) shows sellers/buyers are exhausting and direction may change. Without confirmation, you might catch a falling knife.

Oil is BP's primary driver (0.6-0.8 correlation). If BP is RSI oversold but oil is in strong downtrend, oil may continue dragging BP lower. Filter out oversold longs when oil is crashing, and overbought shorts when oil is surging.

RSI 50 is equilibrium - gains equal losses. Crossing above 50 suggests bullish momentum building. Crossing below 50 suggests bearish momentum. It's an alternative to 30/70 extremes for catching trends earlier.

Divergence: price and RSI moving opposite directions. Bullish: price lower low + RSI higher low (downside weakening). Bearish: price higher high + RSI lower high (upside weakening). These signal potential reversals.

Strong uptrend: Oversold 40, Overbought 80 (trends stay extended). Strong downtrend: Oversold 20, Overbought 60. Range-bound: Standard 30/70. Check oil trend to determine BP regime.

Weekly RSI sets bias. Daily provides signals. Take Daily oversold signals when Weekly > 50 (momentum supports bounce). Skip Daily oversold when Weekly < 40 (major downtrend may continue).

Mean reversion: Exit at RSI 50-55 (longs) or 45-50 (shorts). Momentum: Exit when RSI crosses back to opposite side of 50. Can take partial at first target, let rest run to opposite extreme.

RSI confirms patterns. Hammer + RSI oversold = stronger bounce signal. Double bottom + RSI bullish divergence = very strong long. Pattern without RSI confirmation = lower probability.

Bullish failure swing: RSI enters oversold, bounces, pulls back making higher low (stays above 30), breaks above bounce high. Bearish: enters overbought, drops, bounces making lower high (stays below 70), breaks below pullback low. These are strong reversal signals.

Calculate RSI: Separate gains/losses, SMA then EMA smoothing, RS = Avg_Gain/Avg_Loss, RSI = 100 - (100/(1+RS)). Signal logic: RSI crossing levels + reversal candle + oil filter. Position sizing based on 2% risk and stop distance.

Buy calls at RSI oversold (defined risk long), puts at overbought. Use spreads to reduce cost. DTE: 21-30 for mean reversion, 30-45 for momentum. RSI extremes often coincide with high IV - consider spreads.

Compare BP RSI to XLE (sector) RSI. BP more oversold than sector = BP-specific weakness. Apply RSI to BP/XLE ratio - ratio RSI > 50 means BP outperforming. Sector context improves individual signals.

Per-trade: 2% risk. Max BP exposure: 30%. Max energy sector: 40%. Max concurrent RSI positions: 3. Track win rate, R:R, profit factor separately for mean reversion vs momentum signals.