Rohit Katwal Profile picture
Mar 12 14 tweets 7 min read
Best way to use #RSI for Trading

What is RSI indicator?
RSI is used on price to identify oversold and overbought market conditions. In relative terms, when RSI line touches the 30 line, price is said to be oversold. When RSI touches the 70 line, price is said to be overbought.
Problem of using RSI traditionally is that in heavily trending market #RSI can remain oversold and overbought for a considerably long duration. Consider example of #TATACHEM for example. If you keep selling because of RSI Oversold, you can continue to make losses.
So the proper way is to use RSI + Divergence. 

What is RSI Divergence? When price is moving in opposite direction of the RSI. 

1. Near 70, Price is making Higher Highs & RSI is making Lower Highs; or
2. Near 30, Price is making Lower Lows & RSI is making Higher Lows.

For Ex.
Consider #LICHSGFIN for example on 2HR time frame. Price made lower highs and RSI made higher lows which is a Buy Side Divergence. I was actually short at this level and made a loss on this trade. I got a timely exit as I spotted divergence recently.
Consider example of #TATACOMM on 1HR timeframe. Price made a higher high and RSI made lower high which is a sell side divergence.
Two type of Main RSI Divergence
Wide Divergence
Tight Divergence

Wide Divergence is when difference between Higher Lows or Lower Highs of Price are wide noticeable to naked eyes. 

Tight Divergence is when we have to shift to Line Chart to observe a divergence,
Attached are examples of Wide & Tight Divergence.

Wide Divergence - Notice how wide Divergence on #BHARTIARTL is visible.

Tight Divergence - If you look at #Nifty Hourly chart, tight divergence is not visible. But when we change it to line chart, there is a tight divergence.
Now that we know what divergence on RSI is, we need to understand how to use it. 

Best way to use divergence is at Support and Resistance(S&R) Levels. If you do not know how to identify S&R, I recommend you read the thread on understanding price action. 
Divergence at S&R Level. 

1. Identify the S&R level.
2. Identify the RSI Divergence. 
3. Identify the Entry Signal using trend line.
4. Exit at a predetermined target or trailing SL of 20 EMA.

Consider example of #LICHSGFIN and #EICHERMOT and important markers.
Divergence Inside Smaller Time Frame inside Bigger Time Frame. 

Consider #TATAMOTORS on daily charts. From 12 Oct to 18 Nov, price is making double top. There is a slight divergence on Daily Charts but no entry.
Now look at the same chart on 1HR Chart. This is called divergence within divergence for further narrowing the entry. 

RSI in conjunction with other indicators like MACD can be used to identify whether the trend breakout is genuine or can be a reversal.
In this method here I have used Trend Line for entry. Like any other system, trader must understand the importance of Risk Management & Position Sizing. One can use PSAR, Supertrend or EMA20 for trailing SL. It is a personal choice of trader for what works for them.
This was just a small effort from my side. If you have more examples of RSI Divergence, I request you to share here under comments in this thread itself. 

Do share and retweet this thread if it helped you. 

Do let me know what trading topic we should cover next in comments.

• • •

Missing some Tweet in this thread? You can try to force a refresh

Keep Current with Rohit Katwal

Rohit Katwal Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!


Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @rohit_katwal

Mar 10
Congratulations to @myogiadityanath @BJP4India & @BhagwantMann for stunning election performance. So happy with the people's verdict.

It was going to be whitewash in Punjab for BJP due to farm laws.

There is a key lesson here from Punjab Polls. Contd.

1. Akali and Congress have been interchangeably ruling Punjab for such a long time. This is peoples verdict of showing them the doors for corrupt and useless politics.

2. Every leader apart from AAP, Channi, Badal, Sidhu, Amrinder all are trailing in their own constituencies.
3. 5 Years back, AAP had 4 seats in Punjab with Bhagwant Mann from Sangrur. He kept working for the party and issues and people are giving him clear verdict.

4. @BhagwantMann alone cannot change the state of affairs of Punjab. He will have to fight corrupt mindset of....
Read 6 tweets
Mar 3
Salaried/Employed folks wish to start their own business. Lure of working for self, sky is the limit for growth, freedom of time etc etc makes it look lucrative. Being in business, this is what I have learnt over few years. Hope you can learn something from my experience. 1/n
1. Early 20's are good for you to explore, make mistakes, find your passion. But too many mistakes can soon take you to early 30's without any growth. Learn from experience of others and figure out what you want as early as you can. 2/n
2. If you are stuck in a job and waiting for right time to quit, then right time will never come. Sometimes you have to take a leap of faith trusting in yourself.
Read 14 tweets
Oct 9, 2021
Over Trading...?

Recently had a discussion wherein trader was facing the problem of Over Trading. A Thread...

Over Trading is when:
1. Trading out of boredom, excitement, or revenge
2. Trading with fear of loss or greed over profit.
3. Trading without a plan

What is the root cause of Over Trading? In my opinion, the root cause is
1. Trading being the primary source of income.
2. Trading without a proper strategy and homework.
3. Greed for more profits.
4. Problem locking in profits leading to a minor loss and revenge trading. 2/n
5. Failure to accept controlled loss as a part of trading.

Here are few scenarios of how it happens when you want a certain profit.
1. You make a loss and now desperately want to get breakeven. You overtrade and further slide into the red. 3/n
Read 8 tweets
Oct 7, 2021
The next 2 days i.e. Friday and Monday are going to be tough decision making on #BANKNIFTY.

We are brushing at an all-time high and forming a narrow triangle. COI going down can go for short covering at high to force sellers to liquidate and go higher. Or long buildup might.. Image
start with a fresh breakout. Whatever happens, Monday will be a gamble as far as positional trading is concerned. The way Wednesday sell-off was negated today, I am expecting a range from 37500 to 3900 for the 2nd week of October.
Right now I am trading for a range of 37000 -38500. If we cross 38200, will shift to the 37500 to 39000 range. Definitely going to be interesting and not simple at all. Given that #Nifty is now sideways, bias may remain bullish sideways for some time overall. Image
Read 4 tweets
Aug 29, 2021
Thread on Options in Low Vix High Vol. Environment

At times when Vix is ultra low, premiums are less. As a seller it gets difficult to sell less premiums. If there is a fake move against your direction, it hits the stoploss or forces you to liquidate the position 1/n
only to see market going in your direction. Being a Positional Option Strategist on weekly option then becomes a challenge. How I am coping up with this change....? A thread...

I do not sell cheap options even if its positional 2/n
i.e. bear call spread of 20 point benefit against a max loss of 180 etc in #Nifty or 40 point gain for a 260 point loss in #BankNifty.

Any strategy I create, my priority is to make a strategy with Max_Loss:Max_Profit ratio of 1:1. 3/n
Read 13 tweets
Aug 27, 2021
When I started business I had few things clear in my mind.

1. I believe myself to be a person of Integrity and I expect same to be reciprocated.
2. Interest of clients always supersedes my own interest.
3. In business, I will have to make marketing calls eventually
...regarding product or demat account or MAS or workshop or lets say algo. Offer your services once and if people are not interested, never call them back after introduction. Interested client will automatically contact you provided you give them good services or add value...
That is the reason in 2 years despite so many forms filled, we have never saved any prospect database and never sent spam emails or messages. If someone is not interested, I do not call them back. I don't want someone tagging me as some spam caller.
Read 6 tweets

Did Thread Reader help you today?

Support us! We are indie developers!

This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Don't want to be a Premium member but still want to support us?

Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal

Or Donate anonymously using crypto!


0xfe58350B80634f60Fa6Dc149a72b4DFbc17D341E copy


3ATGMxNzCUFzxpMCHL5sWSt4DVtS8UqXpi copy

Thank you for your support!

Follow Us on Twitter!