Now I have always been a huge fan of starting new traders off with one indicator: the RSI. This allows new traders to avoid the complexities of trading by starting off at a point that is less intimidating where you learned how to simply buy in at a discount and then sell out at a overhyping by showing you how to buy and when a stock is oversold and then sell out when a stock is overbought. This is sort of trading 101. But while the RSI is simple in the strategies with the RSI can be quite simple.

Just because something is simple does not mean it's easy taking a shovel and digging a hole in your backyard. That's quite simple. Is it easy? No. Don't be fooled.

there are no free rides within the stock market and when it comes to the stock market, if you're not paying it forward with your effort, you will be paying it forward with your lack of profits. So whatever happens, you will be paying something forward. And while this may sound simple, it is actually a lot of work to accomplish. There are not that many setups that you see a perfect over selling and over buying on any time chart and it's going to take a lot of work to figure out which setups are good at which setups are bad.

So in this video we are going to be talking about the most powerful and effective ways to trade using me RSI and the only thing that I ask of you in return for this is that you hit that rabbit you like button every time you hit that ravishing like fund, a new trader grows wings I Would love to wake up in the morning and see a bunch of traders flying in the skies. Okay, so let's go ahead and start from the bottom if you are a long-term subscriber to my channel, which by the way, this is the perfect time for you to go ahead and hit that beautiful and ravishing subscribe button right under the video. But if you are a long-term subscriber of this channel, you know that I'm known for two things: Number one is of course my impeccable charm and number two is my focus on finding a good deal a good deal on the RSI. So for you, RSI noobs will do a quick recap introduction on how the RSI works.

The RSI is basically an indicator that ranks the fairness of the current price action based on the price action of the time period that you are viewing it in. Since the stock market is nothing but a irrational beast, prices are in a constant battle upward and downward. But since volatile stocks provide such massive swings between oversold and overbought, the middle of the indicator is considered to be the fair value of the stock. And this is valuable because the battle between fear and excitement creates opportunity to buy in upon a theory aka a discount and sell out upon excitement aka it's over valuation.

But this also creates opportunities when we find patterns of stocks that literally go from oversold to overbought again and again. So to reiterate above, the top line is overbought. Below the bottom line is oversold. In the middle of the indicator is fair value.

Something that is oversold does not mean that it's a good idea to enter. it just means that it is a good deal or relative to the rest of the price action. The same thing with overbought and fair value I Like to save it buying into a stock just because it has been massively discounted as a kin to buying a sick dog on the side of the road. Imagine you had a five-year-old son named Jimmy and he's always wanted a dog.

He wants a beautiful puppy. So one day when you're out on the road, you see a dog dying on the side of the road. You're like, oh, my son Jimmy he wants a puppy. Imagine taking a sick dog home to your kids and watching it die in their arms.

This is just sad and will scar little Jimmy for the rest of his life. And the reason why I use this analogy is simply because it highlights the fact that what you're buying is sick. You want to buy it when it's showing signs of a recovery. You wouldn't adopt a sick dog on the side of the road, so don't adopt a stock until it is showing signs of your recovery and something that is a good deal can become a better deal.

but just being a good deal on the price action does not guarantee profit. We have to find other elevating factors to push the probabilities more in our favor. Okay, great, now that you know what the RSI is, it is time for us to dive into some examples. With F or Ford, we could literally have bought in any time it was oversold and simply held out until it was overbought again and made a profit each time.

With gosh, we could have simply bought in and oversold and sold out at overbought and made a profit each time as well until the final time, at which case we broke support and would have had to cut losses. This was a popular ticker that I spoke about when I originally spoke about this pattern. A lot of my longer-term subscribers are probably aware of this. It brokes the pattern and we would have had to cut losses, And this highlights the fact that patterns they tend to repeat themselves, but they don't have to and they will inevitably break.

That's just the nature of the stock market. Same with Tesla When it displayed the pattern, we could have literally bought in at any time at oversold and sold out at overbought. And with AMD, we have a similar pattern where buying in at any oversold point and selling out at overbought would have been a good deal each time. In fact, even buying in at break up for tea on the horse I would have been a good deal.

And this sort of gets us into sub patterns, which we're going to talk about in a second. But this is very simple. Simply recognizing this pattern means that you could hypothetically know nothing else, nothing else and just buy in it oversold, and sell out at overbought and damned, you have a career. Of course, that sounds simple.

It is simple, but like with everything in trading, there's a lot more to the story and there's a lot of work that gets involved with this. The thing is. looking at this chart, we do see this pattern and it's easy to identify in hindsight as well. But what about the thousands of stocks that don't display this pattern? What about the stocks that have the pattern, but don't continue it? And what about the stocks that have this pattern but have multiple oversold entry points before overbought, like for deaths? Well, it all comes down to how effective you are at spotting the pattern and using the RSI And the first way to be more effective at trading using the RSI is to find stocks that not only have a history of over buying and over selling, but also have sub patterns within the price action.

Let me explain: Door does have a history of being a good deal every time you buy in at oversold, the irrational movement in the price action brings it to many points where it's oversold and overbought, but towards the more recent price action, we haven't seen it yet reach an overbought exit point and continuation of the pattern, yet it continues to uptrend. So how can we evaluate whether or not this is a good stock to buy in at oversold? next time? Well, by looking for sub patterns. For example, in this case, Door hasn't been able to reach overbought, but it has gone consistently from oversold to way above fair value, even reaching as far as 65 on the RSI. This cements in the pattern that we do have a continued strength to go from oversold to way above their value, just not all the way to overbought.

This sub pattern means that if we can't reach overbought, we have a previous pattern of reaching way above fair value. and so in worst case scenario, we have a decent amount of upside to relatively low amount of downside, but that's half the battle. We also have a price action history of keeping within this interval between a downtrend of lower highs and lower lows. Aka, to put it in another, we have support and resistance that is in a downtrend overall, but is also doing someone a fluctuating way that allows us to profit off the fight with the Bulls and the Bears.

But I drew this trendline just to give you an idea of context when it comes to relating the price action to the RSI indications. But recognizing this downward shuffle allows us to buy in not only during a discount at oversold, but also to check to make sure we don't have a massive break of pattern. For example, at this tip, here, we were oversold. But we don't just buy in because we are oversold.

We wait until we see signs of a recovery. Buying in here was dangerous because we don't know if the stock is just going to keep dipping. If you were to buy in here, that's just too dangerous. Again, this would be the same as buying a sick dog on the side of the road.

We don't buy dogs just because they're sticking on the side of the road. We buy them because they have signs of recovering. So instead of doing that, we use the RSI to acknowledge to acknowledge that we just came from oversold. And then we wait for signs of a recovery with a confirmation with a confirmation of the first candlestick holding above our blue SMA line.

And it is important to wait for confirmation. not because it is a guarantee that the price will continue upward after a confirmation, but for the very fact that it is not guaranteed. it is not guaranteed. But if you wait for confirmation that it's going to continue going up, that should be.

Obviously, there's no guarantees with the stock market. Think about that just for a second. If it is not guaranteed that the price action will continue rising after a statistically significant break upward aka our confirmation. Imagine how bad the odds are if you don't wait for confirmation to take it back to our sick dog analogy.

A sick dog may all of a sudden start barking and yapping happily while on the side of the road, but it may still die afterwards. Thus, we need to understand that signs of a recovery are elevating factors, but they aren't guarantees of a recovery. And while they aren't guarantees when it comes to the stock market, it pushes the probabilities in our favor. So then in the long run we can end up overall consistent.

But more about sub patterns. Can you trade off just sub patterns? Absolutely. In fact, we can find common levels of reaching below fair value and then recovering above fair value. For example, with JD SP we see that literally buying in at a thirty-five mark and selling out at the 60 mark on the RSI would have led us to a profit each and every time.

But when it comes to trading sub patterns on the RSI, it is better to use them as a guide for context, rather an entry point for entry point planning. For example, say we've identified this pattern when the price action was trading Around this point, we could see that so far that morning J DST provided very sloppy price action. We have confirmations, but then we are validated out again and again with that break below our SMA line which is the blue one, the short-term blue SMA line we are validated. We have validated is exiting when we see a break below or short-term blue SMA line and we are confirmed in entering when we see a break above the short-term SMA line.

But anyways, this is where sub patterns come in. You see, while we like to buy in at confirmation and write the price action up until we break back below our SMA line, price action like this doesn't allow for that because it keeps tripping itself back under the SMA line as we could see from earlier in that morning, but moody price action also provides opportunity. While it makes it hard for us to use our normal conformation and sell out of validation strategy, there are other ways to measure the volatility. Since the SMA line isn't providing the clear run ups that we need and that is where these sub patterns come in, we can simply identify that we have a history of going from below fair value towards 35 and then the next time it dips below or reaches 35, we can simply buy in when it breaks back above it.

This allows us to buy in when it's below a commonly reached level of being below fair value on the RSI while also allowing us to buy in when it is showing signs of a recovery. And then we could simply sell out at 60. And of course, if we had done this on the chart, we would have made a profit each and every single time because it displayed that pattern. But don't let this confuse you.

I Know that a lot of my examples make it seem a little bit too easy and I don't do that intentionally. It's just that the way is that if I show you an example on a chart, it's going to look like it's that way every time, but it's not that way every time. This could have just as well broke the pattern and many times it will break the pattern. But the idea is the same.

You buy in upon a pattern confirmation and continuation, and if or rather, when it breaks the pattern, you will cut your losses quickly. But in any case, once you can acknowledge certain patterns, it becomes a little bit more simple to understand when the pattern has broken. But let's take a moment to break down what using sub patterns really does. By trading off these 35 and 60 marks on the RSI, we essentially just tightened the RSI indications.

Instead of considering 30 and 70 oversold and overbought entry points, we essentially just closed the gap and made our irrelevant discount 35 and 60. Because they had a previous pattern of going to these points, there was a previous pattern that we identified and that is fine. You are welcome to tighten the RSI as much as you want, but you need to understand that these smaller the gap between oversold and overbought. The less difference there is between over bind and over selling, and thus the less profit potential you have and the less significant the moves are.

That is to say that the more that you tighten the RSI, the less useful it is. For example, if we set the RSI lines to 45 and 55 Yes, there are obviously patterns that display in this range, you would be finding a lot more patterns, but there isn't much difference between the two in terms of price action, so if we identified a pattern between 45 and 55, it wouldn't be very useful to us. Where is With 70 and 30, there's a huge difference, so that is something to be careful of when creating sub patterns. They work well and are useful only if the difference between your entry point and your exit point are significant enough for it to make sense.

Okay, so at this point I've gone into how to use the RSI, how to use the Hora site to find good entry and exit points, and I went in a little bit about how timing the RSI can be useful for finding more patterns, but at a certain point there's diminishing returns and it becomes negative as it gets a little bit too tight to be useful. Now we are going to be going into some of the elevating factors that make your RSI oversold entry points more likely to recover to fair value and beyond. And the first way to do this is to trade stocks that are showing an elevation of volatility on the RSI I Found that many stocks become prone to rapid over seven and over buying after showing an increase in volatility. for example, What? Zillow We saw this pretty melancholy over selling and then all of a sudden it started moving quicker and higher and closer to fair value.

Then we saw right up to overbought and boom. We have a pattern of over buying and over selling. So the methodology here is essentially to catch them before the formation and I Found this ascending RSI pattern to be prone to forming our beautiful over seven and over buying pattern also known as the comeback King and this can be in either direction. By the way, it can go from over buying downward as well.

doesn't have to be from over selling upward, but it can be in either direction. and B Pro of this is that if you can catch it early as they say, the early bird gets the warm and here at Zip Crater we love worms. But the con is that it's at this point where you don't have a long-term pattern of it. We love long-term patterns because that creates an elevating factor that it's going to continue.

So to mitigate this, my suggestion is to find thoughts that have a long-term history of displaying the pattern at some point, but may not have a history of displaying it at the moment. And a lot of people don't like this. They think Oh Charlie that sounds like so much work. I Thought Patterns and trading were easy.

This is a common complaint that I get in my messages and in the comments section of my videos and there's nothing really I could say to this: the training. It's a skill. Like anything else, it's not going to come easy. There is a lot of work that goes into building and continuing to grow your account when trading within the stock market.

So I discourage you from shying away from the work and taking the easy way out. When it comes to the stock market, there simply is no easy way out. I Have always been a big believer in the phrase take care of the work and the work will take care of you. and that is ever so true when it comes to the stock market.

The only thing is the work has a much bigger curve as a beginner. so make sure that you're putting the time and make sure that you're setting attainable goals and make sure that you're scaling up your efforts. But anyways I Do hope that this video is helpful if you have any questions. feel free to reach out to us below or join our free zip trader Circle Facebook group.

We also have a training tutorials, playlist, a disc or chat, and a bunch of other resources. Any Zip trader Hemisphere that you can join by joining our Zip Trader Circle Facebook group Anyways, have a great day folks and I'll see you in the next video.