How to use RSI and how to use Bollinger bands -- and how NOT to use them. // RSI trading strategies RSI explained RSI indicator explained Stock trading strategies Options trading strategies welcome to looking at the markets with David Moadel what I wanted to talk about
today was the best indicator of all really is you and your common sense and
your judgment and your eyes what you see in front of you on the chart
yes you can use RSI you can use Bollinger Bands Mac t Keltner channels
stochastics you could use whatever indicators you want moving averages all
of the above but at the end of the day if you're letting these indicators make
the decision for you and you're not using your common sense you're not using
your judgment and you're not using what your eyes see right in front of you then
it's probably not going to work out too well
alright so let's look at some examples i like to use moving averages i also like
to use RSI and bollinger bands
alright so for example here's a chart of apple and by the way today is august 15
2016 here's the Apple chart for today and just want to give you some examples
about how these indicators don't always work and sometimes you just have to i
don't want to say ignore them
you can take them into account you can make them part of your decision-making
process but they shouldn't override what your eyes see and your common sense for
example you know if you had just use up used RSI blindly just you know said to
yourself right here
well the RSI 14 . is telling me that Apple is oversold ok it's below 30 so
it's oversold and so therefore I should just go ahead and buy calls or or just
buy the stock by the common stock go along right
right here oversold well it at least short-term you wouldn't have done too
well alright because it because it it went into oversold territory and then
stay there for a while and so if you had bought calls right here especially
short-term calls you wouldn't done too well the time decay and the price action
would have been pretty pretty devastating to your short-term
investment there and don't get me wrong if you had held on it would come back up
but you know just because it the RSI goes below 30 RSI 14 . goes below 30
that's not an automatic buy signal alright same with the Bollinger Bands I
mean yes it it went below the bottom bollinger band but you know this was an
earnings or earnings event and keep in mind after an earnings miss a big
earnings myths for the next usually the next couple of weeks
analysts are going to downgrade a company or a stock after big big
earnings miss and so it should be no surprise that for the next couple of
weeks the stock continued to go down and so just because it goes below the bottom
bollinger band doesn't mean you automatically should should go along at
that exact moment you have to
yeah yeah you look at the news and you look at what's going on in the overall
markets you watch the S&P 500 price action and you use use your eyes and
ears and not just the indicators all right now over here if you had just used
bollinger band so it you can see the candle pierced above the top band here
okay and if you just went by Bollinger Band overbought indication then you'd
say all I should buy puts here or i should show
apple and it's just gone up since then so the Bollinger Bands don't always work
and it went into it
RSI on the RSI 14 . it went into overbought territory above 70 is
considered by many people to be overbought into expensive and that's
when you're short a stock or a company or you buy puts or put spreads but
it'sit's since it went into overbought territory on the indicator it's just
gone up and so your puts or shorting Apple wouldn't have worked out too well
at least not so far
let's look at some other examples and I I think you'll see it that these things
don't always work here Cisco and you're right here this is nothing to do with an
earnings event or anything like that
this is just chillin right here
according to the RSI indicator it went into overbought territory and so right
here right right about here
somebody might say okay well that automatically means that i should i
should go short or buy puts and that has not worked out well at all
alright another example would be here is FCX and freeport Morin and right here
it went into overbought territory on the RSI right here right about here and it's
just gonna up and up and up since then
all right now if you had held on you might have even but it'sit's the trend
is just gone up and up and up and up since then
alright so that end the bollinger bands as well it did you know it it pierced
broke through that top band which would mean
ok it's too expensive it's overbought it's time to go short but again that has
not worked out well at all
both in the short term the the immediate short-term the the medium-term and the
longer term just gone up since then there's microsoft and you know right
here
it went into overbought territory on the RSI it's just gone up since them doesn't
mean it won't come down maybe if you hold on it will come back down but you
know and then right here it pierced above the top band here and it's just
gone up since then
alright doesn't mean it never works sometimes it works quite well it it hit
the bottom band here and then if you'd bought here because you decided it was
oversold because it pierced the bottom and yet when up since then
ok and it bounced off the bottom and here you know sometimes it works
sometimes it doesn't
over here it appears the bottom and just get going and yes it recovered but it is
it's it's not a perfect indicator none of these indicators are perfect
so so my message to you is you know you you got to use your common sense more
than indicators alright you want to look at the momentum you want to look at sure
the moving averages to decide whether the overall trend is up or down
that's a big part of it you want to look at the overall market watch you know
watch the spiders sby ok or SPX just you know you can watch the S&P 500 you can
watch the dow you can watch nasdaq if it's a tech stock that you're looking at
and use your own judgment do not blindly follow indicators and definitely do not
use one or two indicators as your only means of deciding whether to buy or sell
so while i recommend these indicators as guidelines to help you
it's not everything and so if you'd like more help with this with technical
indicators and how to use them and how not to use them or if you do if you just
like to set up a trading plan if you like some help with investing and
trading finance stocks options I can certainly help you
my name is David Modell and you can email me anytime at David Modell @
gmail.com and if you like this video please by all means give it a thumbs up
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I'm always trying to think of new educational content to put out there to
help you with your trading and investing so thanks a lot and i'll talk to you
soon