In technical analysis there are various indicators with which we can analyze the stocks. Some are good for some stocks, others are not. That is why it is also important to find which indicators are suitable for a specific share. It is said, for example, that stochastics as an indicator go well with stocks with investment management and stocks that move very quietly higher or in correction slowly.
But the indicator with which we can analyze almost all stocks is the Relative Strength Index (RSI). We should find the right pattern for this, but it takes some time and analysis. The RSI indicator is mostly very synchronous with the stock price and at first glance you can't say much about it. But sometimes there is a bullish divergence where the stock price trend doesn't match the RSI.
This can be a good buying opportunity for us. It is important again that we are best in a bull market. Then we look for stocks where exactly RSI and share prices are wrong. Second, we are looking for a pattern that tells us where our entry price can be. The best way to show this is with an example.
RSI index is considered normal in the range of 30 to 70, over 70 the shares are classified as overbought and below 30 as oversold. Best of all (as in the example) if a stock comes in the correction and the RSI index falls below 30. After a couple of trading days there is a recovery, the RSI index rises again above 30 but then stock prices fall at the same level or entirely Closeness. Not the RSI index, it still remains above 30. This is our entry option and the right pattern we are looking for (see arrow).
In addition to these patterns, there are also other bullish signals to be found, such as candle patterns or other indicators that show the same thing. On the other hand, recovery in some stocks is very strong and so is the RSI index. This is not the right pattern and also not a purchase. It also happens that the RSI index rises above 30 then falls below 30 again, which is actually just confirmation of falling prices. This pattern is not a purchase either.
RSI Index can also tell us when to sell our stocks. If RSI value rises above 70 it is a sell signal for us. It is recommended to sell at least one part and then at some point with value (values) above 70 also everything.
Conversely, the same applies. If stock price comes to new high and the RSI value is over 70, then at the next new high of stock price RSI index has not reached the value 70, stocks can be shorted.