Trend RSI value above 80 is considered as overbought and value below 20 is considered as oversold conditions in the instrument. Some traders use 70 30 levels. In a consolidation, the overbought oversold levels signal reversal. In strong trends, overbought oversold levels mean a temporary pause in the trend before continuation.
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Some traders use Cross over between Trend RSI and its signal line can be used as signals. When a cross down happens sell positions can be opened. When up crossover happens buy positions can be opened. However, trades taken in the long term trend direction works best with this strategy. Another method is the divergence between price and Trend RSI. When price makes new lows, but Trend RSI fails to make new lows, buying is suggested. Price makes new highs, but Trend RSI fails to make new highs, selling is suggested. When divergence happens, it more likely that the prevailing trend will reverse direction.
RSIPeriod – RSI Period
EMAPeriod – Smoothing MA Period for Price
ATRPeriod – ATR Period
K – Smoothing Factor