Objective
The objective of this assignment is to use the Relative Strength Index (RSI) along with the
Momentum oscillator and moving averages to improve the probability of accurate trade
signals. Specifically:
Confirm buy signals using oversold RSI, convergence between RSI and price, and
breaking of RSI resistance levels.
Confirm sell signals using overbought RSI, divergence between RSI and price, and
breaking of RSI support levels.
Step 1: Chart Setup
Timeframe: Daily chart
Indicators Added:
1. Short-term Moving Average (MA) – e.g., 9, 14, or 21 periods; used as a trade trigger.
2. Momentum Indicator – periods used: 10 or 18; measures the speed of price changes.
3. Relative Strength Index (RSI) – default period 14; identifies overbought and oversold
conditions.
Note: With the free version of TradingView, only 3 indicators can be used simultaneously
(excluding trendlines). You may remove either the 200-day MA or the 200-day Price Oscillator to
add the RSI.
Step 2: Setting RSI Boundaries
Observe previous highs and lows of RSI to define overbought and oversold levels.
Check historical price movements to set realistic RSI levels for confirming signals.
Step 3: Buy Signal Analysis
Look for oversold RSI conditions (typically below 30).
Confirm convergence between RSI and price (e.g., price making a lower low while RSI
makes a higher low – bullish divergence).
Look for RSI resistance break, indicating potential upward momentum.
Ensure short-term MA aligns with the overall trend.
Step 4: Sell Signal Analysis
Look for overbought RSI conditions (typically above 70).
Confirm divergence between RSI and price (e.g., price making a higher high while RSI
makes a lower high – bearish divergence).
Look for RSI support break, indicating potential downward momentum.
Ensure short-term MA aligns with the overall trend.
Step 5: Additional Observations
Test different Momentum periods (10 and 18) to refine signal clarity.
Experiment with different short-term MA periods to improve trigger accuracy.
Observe how signals behave during both bull and bear markets.
Step 6: Findings
Market
Observations Remarks
Type
- RSI confirmed oversold conditions during
price dips.
Momentum period 18 provided more
Bull - Convergence between RSI and price
reliable signals with fewer false
Market improved buy signal accuracy.
positives.
- Momentum supported the strength of
upward movements.
- Overbought RSI conditions signaled short-
term reversals.
Bear - Divergence between RSI and price Short-term MA helped filter false signals
Market predicted sell opportunities. effectively.
- Momentum confirmed weakening price
trends before reversals.
General - RSI resistance and support breaks aligned Overall, using RSI alongside other
with major trend changes. indicators improves accuracy of buy/sell
Market
Observations Remarks
Type
- Combining RSI with Momentum and
short-term MA enhanced trade signal signals.
reliability.