First in RSI WPR Trading Strategy you should look for the RSI to move above 70 or below 30. When the RSI passes through one of these levels, the underlying’s price is seen as being close to exhaustion. Trend traders may take this as a signal to go into defence by decreasing their stop orders gap, selling call options against their positions, or by closing their trade.
Where as, Swing traders may take an overbought or oversold RSI reading, coupled with other supporting analysis, as a indication to enter into a fresh position in the antagonistic direction of the trend. This might involve selling out-of-money options at odds with the trend, buying options planned to profit from a trend turnaround, buying or selling the underlying countertrend, or some sort of combination of both instruments to reduce position volatility.
As you start to chart the RSI, you will notice it seldomly falls below 30 or breaks above 70. The rarity of a trigger is a good hint that the indicator has a delayed trigger, and any signal it does present should be a fairly sound indication for those involved in countertrend swing trading. Ultimately, a signal is only offered in quite extreme market conditions.
The WPR shows levels from 0 to -100; this conventional version of the WPR is presented in a antagonistic manner. A reading below -80 implies a selloff might be close to reversing, where as a reading higher than -20 implies the present rally might be ready for a reversal. Be that as it may, we like to keep instruments as straightforward as possible. To save ourselves the inconvenience of focusing on inverse values, we change the indicator to a 0 and 100, this inverts the oversold and overbought areas. A reading above 80 is seen as overbought, while a reading below 20 is seen as being oversold.
Now to tie the RSI and WPR indicators together, since the Williams %R is a quick-triggered indicator, when the WPR reaches the 80 or 20 readings, we prepare our trade and wait for the corresponding 70 or 30 RSI thresholds to be breached. Once this occurs this gives us confirmation to enter our trade.
RSI WPR Trading Strategy Conclusion
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