Application method:
This indicator belongs to the category of strength and weakness, reflecting the relative strength of the stock price trend over a period of time. Through statistical methods, the index is artificially set as three relative strong and weak regions: 20, 50 and 80. When the index falls below 20, it means that the stock price may trigger a rebound at any time. When the index rises above 80, it means that the stock price may be adjusted at any time; When the index is consolidating around 50, it means that the stock price enters a long-short equilibrium; When the index falls from above 50 to below 50 and cannot be pulled back again in a short time, it means that the stock price turns from strong to weak; On the contrary, it means that the stock price has turned from weak to strong. Here I only introduce how to use this indicator for short-term stock selection.
1, looking for oversold rebound stocks
When the index falls below 20, it means that the stock price is extremely oversold in the short term and may trigger a rebound at any time. If combined with the volume analysis, it is a good short-term sniper opportunity when the volume has also shrunk sharply and lasted for a certain period of time (representing the main force's comprehensive dishwashing and the market downturn) and the K-line pattern fluctuates horizontally. After that, once the trading volume is effectively enlarged, the rebound will begin, and the RSI indicator will soon be able to break away from the weak area below 20.
After the RSI indicator quickly breaks away from the weak area below 20, its target position and resistance position will be around 50, and there may be a short-term callback at this indicator position (called double dip confirmation breakthrough effectiveness). This is another excellent point of intervention. Due to the intervention of short-term funds when the stock price goes out of the weak zone, the success rate of the second shrinkage bottoming intervention is estimated to be above 80%.
2. Look for stocks that turn from weak to strong.
When the index rushes from below 50 to above 50, and does not fall below the long-short equilibrium line 50 again in a short time, it shows that the stock price has turned from weak to strong, which is a good entry point, and then the stock price may rise again, and the index will also hit a higher value. When the market is weak or there is no plate effect, the RSI indicator is usually blocked by the long-short dividing line of 50, and even if it breaks through, it will not overshoot too high. Therefore, the success rate of stock selection from weak to strong in weak cities is about 70%, and the strong market is estimated to reach more than 85%.
3. Top deviation
Generally speaking, technical indicators tend to deviate from the top, and RSI indicators are no exception. The top deviation of RSI indicator means that the stock price hit a new high in the upward trend, and then the RSI indicator also hit a new high above 80, and then the stock price fell back to a certain extent, and RSI was also adjusted with the downward trend of the stock price. However, if the stock price rises again and exceeds the previous high point, the RSI will continue to rise with the stock price and will not exceed the previous high point, resulting in the top deviation of RSI. After the top deviation of RSI, it is more likely that the stock price will peak.
The reason why RSI's top deviation is a sign that the stock price peaks is mainly because when the dealer pulls up the shipment, in order to make a quick shipment, his pull-up action is bound to be rapid and violent, and the shipment action will last for a long time and space. This feature determines that the dealer has repeatedly raised the stock price. However, because the RSI index mainly reflects the strength of the market, this trend of no longer being strong will undoubtedly lead to the decline of RSI. Therefore, once the dealer's shipping trend appears, RSI usually falls back to a large extent, thus forming a top deviation trend. This phenomenon is also likely to appear in indicators such as KDJ, and the phenomenon that the volume deviates from the stock price is also one of the signs that the stock price peaks. As the price rises, the trading volume tends to decrease, indicating that the market trading activity is gradually weakening, and then the stock price is likely to face a downward trend.
Precautions:
When there is a unilateral market, the rsi indicator will be passivated at a high or low level, so it will be sold or bought prematurely. RSI has no obvious regular buying or selling signals. When the pointer is at a high level, it can only show that the possibility of emotional inversion is increasing, and there is no way to further clearly point out the time point. Generally speaking, the deviation signal of RSI is usually verified afterwards, and it is difficult to see beforehand that the "deviation" trend between RSI indicators and stock prices is often lagging behind.
Summary:
RSI index is called relative strength index, which reflects the relative strength of stock price within a certain time parameter. It should be comprehensively judged in combination with the relationship between quantity and price in operation, which is suitable for normal market operation. Sometimes when the stock price is extremely weak, the index will be passivated at a low level for a long time. At this time, if you only operate on the index, you will inevitably fail, or even fail miserably. Therefore, investors can look at historical data to summarize and review, and it is more effective to introduce actual combat after many simulations.