welcome everyone this is John sheely I'm adaytrader.com and I'm going to
be talking about the importance of technical research and our website I am
adaytrader.com but of course before we begin we must look at our disclosures
as you know trading does result in to a high level of risk and training is not
suitable for all traders also past returns are not necessarily indicative
for future results in this disclaimer we're talking about the hypothetical
disclaimer this is because we're about to discuss the hypothetical results if
you have taken certain trades and a very popular technical indicator the relative
strength indicator you're about to see the results of over ten years of
potential trades however they weren't actually executed it's all about
research the results of our indicators and how we can use that information for
our members let's take a look we're going to discuss the relative strength
indicator RSI and I'm going to show the 14 period RSI which is basically default
in many different platforms and we're going to be talking about whether or not
the prices are quote oversold at a level of 30 or if it's overbought the value of
70 let's take a look at what happens if we took every single trade based upon
these values let's take a look at the chart I'm showing two different
indicators of course the RSI and I'm going to be talking about the ATR the
Average True Range and how we use that for research so all we're taking a look
is here we have the prices begin to fall and the RSI was a value of less than 30
now what that means by many different members just in many different traders
is that if the market is under 30 then the market is quote oversold well if
that's the case I should be buying in regards to the crude oil in this
particular contract look for a profit objective and also use a stop loss and
if price is true we are going to bounce up that I should
have a profitable result and this is an example right here the market went under
it rised and I was able to make a profit now you may wonder well how high am I
looking to take that particular trade well here's what we're going to use
instead of a different particular price level because I'm going to be looking at
results for over ten years we're going to said use the RSI as our trigger and
our profit objectives and our stop losses are going to be based upon the
ATR so in other words if I bought because the market is oversold then I'm
going to take profits to average to range from the entry but I need to use a
stop loss and so I'm going to use a stop loss that is Two ATR underneath the
entry so what you're seeing here is that we had a profit right here yes but the
problem is right there the market was oversold and as it turns out the prices
fell back more than to average to range from my entry so I actually had a loss
here prices came back we have an oversold
indication by the RSI and we had a profit prices fell and it began to rose
again so there's a profit so here we're looking at four trades three of them one
and one of them had a loss now that's the case for the last several months but
wait a second let's go take it the results for the last ten years again
we're going to take every single trade in the last ten years on the daily chart
and what you're seeing is a very different result here on the short side
you actually made money in fact you had 65% of the winners but take a look what
happened on the long trade you had a huge loss so as a result of all the
trades you had a big loss let's take a look at why that happened let's take a
look at the prices here during this particular part of 2015 an early part of
16 and as you can tell the market was severely
oversoul well as you can imagine if I kept trying to buy an oversold market I
just had losses after losses after losses after losses so that's exactly
why you saw if I was trying to buy contracts because it was oversold then I
was beginning to over and over again had a loss every once in a while we had some
rallies and that some trades that were winning but take a look a little more
history as well take a look at this price action during the 2014 every time
I was trying to kept trying to buy because it was quote oversold I just had
loss after loss after loss then you're taking a look at the market being again
over sold and 2009 2008 and of course losses again and again now once their
trend begins to really have a nice rise well now what's going to happen is that
you're beginning to try to sell because it was quote overbought but if you're in
a strong trend you keep having losses again so so let's just think about what
we just saw the books and many courses discuss taking a trade based upon a
market is overbought or oversold because of the RSI either a value of 70 or 30
and as you can tell it totally depends on whether or not the market is in a
severely strong bearish trend or severely strong bearish trend so in
other words it doesn't really make any difference the whole idea is it doesn't
make any money if you're trying to take trades based upon an overbought or an
oversold indication by the RSI that is not how you're going to make money let's
take a look at a few results here are the last 10 years on gold how's that
doing it's now almost the opposite now the short trades are beginning to lose
money and the long trades are beginning to make money well again it's because
what is the trend doing if the trend is actually beginning to try to rise
constantly after again over and over you're going to have nothing but
losses trying to bet that the market is quote overbought because every time you
go short if it's in a strong market you're going to keep having losses here
we're taking a look at the euro you're taking a long trades now again let me
trying to buy an overbought market and it's just loss after loss in fact look
at here 33 percent of winning trades most of the trades of course are losing
and you have a very few trades in regards to a percentage of winners
lastly let's take a look at the spider that's the sp500 in the ETF and I'm
taking a look at the last ten years as you can probably know that the
markets been very strong over the last ten years there has been some bearish
trends from time to time and as you can probably tell every time you're trying
to go oversold or overbought and you're trying to sell in an overbought market
and the sp500 you know what you're going to see the long trades you are beginning
to still have losses trying to sell and they strong sp500 nothing but shorts and
basically you can tell you are again having losses over and over again
because the market is in a strong bullish trend in the last ten years so
the whole idea is you're taking a look can you make money trying to buy or sell
an overbought or oversold market using the RSI which you hear about in books
videos courses is Center this is what we do we don't just take the results of
what we see in a book or whether or not we hear it in a course we put it in our
tradestation strategy we back test to see whether or not prices really do rise
I really do fall in an overbought or oversold market well as you can tell
with research it says absolutely not you do not try to buy an oversold market you
do not try to sell in an overbought market whether or not it is in
commodities Forex are even stock the RSI at a value of 30 and 70 is not
reliable in regards to indicate whether or not you should sell or buy based upon
the price action that do we see in the charts oh but wait wait I just now
realize you may wonder yes but you are showing a profit objective of to average
to range in regards to the profit objective and the stop-loss what if I
only had one average to range is my profit objective let's just take a look
now if I bought every time the market is oversold and I've tried to sell every
time it is over bought now remember every time the market is oversold I will
take a long trade if it is overbought I will then go sell because the books tell
me it's supposed to fall when the market is overbought or oversold look at the
results in fact all that means is that you're going to lose money no matter
what you do trying to buy or sell an oversold or overbought market when your
profit objective is one average your range and a profit target of one average
your range it's just nothing but losses oh and by
the way the results doesn't include slippage or commissions I'm just showing
you the raw results using the tradestation script so again do you buy
or sell just because the RSI is overbought or oversold the answer is
absolutely not this is John Sheely at daytraders,com I hope you've enjoyed
this short video and remember to download our free offers what is the
truth about day trading the day trading ebook and our training manual getting
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