What’s the most reliable way you’ve found to confirm RSI signals? Do you combine RSI with other indicators? If so, which ones and why?
I like to use RSI as a starting point but I don’t trust it by itself. I usually throw in the MACD because it helps me spot momentum changes. When both RSI and MACD line up, I feel way more confident. Honestly, I just look for a few signals to agree before jumping in, makes trading less stressful and more reliable.
The classic idea of the use of technical indicators was that price behaviour would tell you what to buy and the indicator would tell you when to buy.
Which is slightly odd, given that the only information indicators can use is price. So there is a conflict in this principle - it’s a little like listening to someone narrate a movie to you rather than you actually watching it.
Indicators can help make price action clearer, but they can’t tell you things which price isn’t saying. They can help, confirming a theory is a good theory, a trade plan is a good plan, and they can provide a framerwork for trade management. But they are not traffic lights.
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I used to use RSI way more back in the day. But the more I traded, the more I saw how often it could lead me into traps, especially when the market’s trending strong. These days, I keep things simpler and rely more on clean price action, watching how price behaves around support and resistance, and paying close attention to structure. I’ll still check RSI here and there, but honestly, I trust moving averages and volume shifts more now. They give me a clearer read on momentum and help avoid chasing weak setups.
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Hi Jordan,
I think this very recent post may help you - especially the part about the important mistake to avoid. (The post was mostly about MACD but most of it applies to your question, too, as the underlying point is the same!).
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@tommor has hit the nail on the head. The RSI indicator gives “overbought” and “oversold” signals that supposedly say you should sell or buy. But the only thing that they can see is price. How can something be judged as overbought because price has been moving up?
The indicator basically follows the principle of what goes up must come down and says the longer it’s been going up for, the more likely it is to come down. It’s not necessarily a bad philosophy because the markets tend to retrace even during a trend, but the indicator isn’t seeing anything that really means price should change direction. And that goes for all of them.
This is why it’s so hard to find settings for indicators that work, and over a long period I strongly doubt any settings for one indicator work.
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Your explanation neatly matches the one provided (but at far greater length!) by Robert Miner in his book “Dynamic Trading: Dynamic Concepts in Time, Price and Pattern Analysis With Practical Strategies for Traders and Investors”.
He tries to explain it in terms of a confusion between the speed and the acceleration of a car, so that people will understand that the acceleration can decrease while the speed (price) continues to increase.
I do sometimes wonder, with these “overbought” and “oversold” things, in trading (RSI isn’t the only one?), whether I should be buying, when things are “overbought”.
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I think what you’ll find is a situation where both strategies lose. In fact I will backtest this now to illustrate how bad indicators are.
Test 1 - Buy cross below 30, sell cross above 70, RR = 2:1
Test 2 - Sell cross below 30, Buy cross above 70, RR = 2:1
You can see that following the typical advice is a massive loser, but you also lose if you go the other way. This is data from the start of this year, so not a huge sample.
So lets change RR to 1:1 and see what happens:
Test 3 - Sell cross below 30, Buy cross above 70, RR = 1:1
Test 4 - Buy cross below 30, sell cross above 70, RR = 1:1
Ok, we have a winner. Test 3 trading the opposite of common wisdom is profitable over the last 6 months, the others quite clearly suck. Let’s open up the data to 2.5 years and see if this strategy still works.
Test 5 - Sell cross below 30, Buy cross above 70, RR = 1:1, 2.5 years period
Well, it’s profitable. 1% over 2.5 years but you can quite clearly see that this system is no good. If I did this test 1 week ago it would be a loser.
Hopefully this quick demo shows you how bad common wisdom is. I wish somebody had shown me this when I started. High RR and indicators suck for creating strategies. Your RR is typically about the same as your win rate and the spread knocks them all to be losers.
I’d strongly recommend sticking to some form of price action that suits the market you’re trading. And remember, it’s never the strategy that makes you profitable, it’s your ability to manage the trades that will give you an edge.
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Thanks very much, John.
I suppose I shouldn’t be surprised? Using indicator “signals” to enter trades is a bit of a loser’s game, overall, really? 
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I put the wrong image up for test 2, fixed now.
If indicators worked, the failure rate wouldn’t be so high. Almost all information you find on the internet is written by people who don’t make money. It’s so difficult to find out what actually works. And most of the time, the strategy isn’t even important. There have been several experiments using random entries and demonstrating that good money management can make random entries profitable.
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Definitely my conclusion, too! It’s easier to make money from writing and teaching than from trading, isn’t it?
Unfortunately that phrase “Those who can’t do, teach” is true, for trading. 
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Of course it is. But you’re not going to convince many people of that in a forum where people discuss how to “confirm” indicator “signals” with additional indicators, are you?
The RSI is 100% reliable: unless there’s something seriously awry with the software in your trading platform, it displays - according to a standard formula - the relative strength index over the lookback period you’ve told it to display, in your settings.
There are very many ways of interpreting and using the information it displays, of course. But we each by definition know how we’ll do that, surely, before we start using that particular indicator - otherwise why would we be using it?
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Hi @Jordan.B,
To know how to use an indicator, we have to learn its formula. RSI for example, the formula is
So, RSI will consider the last n candle only. For example, when you use 14 period, it will use 14 last candle, the rest will be ignored. It’s different to some indicators that still consider previous value, such as EMA.
Base on the formula, we can tell that it’s looking for momentum. When within the last 14 candles, more bullish candle, RSI will show increment, otherwise will be decrement.
The formula has defect when market price move too fast or the instrument is too volatile.So you have to find how it reacts to instrument and on which time frame. Using indicator in trading is not the same to all instrument. For example, using RSI on XAU certain time frame, you can think of overbought / oversold strategy, but on currency pair RSI is mostly useless to be used on higher TF, but it is still helpful showing you momentum.
The best way to use RSI is for indicating reversal by looking at RSI Convergence and Divergence. The reason behind it is the formula. When in within n period there are more bullish candle, the RSI will show higher value. When there is resistance, some bearish candles will come. This will reduce RSI number. When market tries to break the resistance, RSI will start to climb again, when the breakout isn’t success, the latest RSI value won’t surpass the previous peak. It tells us the bullish strength has reached the limit.
When you use RSI as momentum indicator, it’s best for you to use other type of indicator, for example indicator to show equilibrium, dynamic SnR or trend. Unlikely a good strategy can be produced by using two or more indicators for the same purpose. Example, you use RSI and Stochastic both as momentum indicator, it will be looked as brother and sister. 
So no benefit of using them.
In the past, I taught how to use RSI for scalping. We used only candlestick or Heikin-Ashi candle for scalping on M1 and M5 TF. My opinion, before I use RSI, I have to identify trend or SnR properly. Different market phase, trending and sideways, RSI will have different usage.
Hopefully it helps 
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Because we don’t really understand how markets move, why prices move and what to do, and we were taught to trade by marketers, not by traders.
So we’ve heard that indicators can “predict” which way the price will move, and we try that because it’s easy and we want to copy something easy.
Then when it doesn’t really work that way (and somehow it never does?), we try to improve it by adding more indicators, hoping (“expecting”?) that that will fix it, and we’ll “filter out” the bad trades and magically keep the winners. 
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Think of indicators as tools to solve specific problems in your trading.
It depends on how you use the RSI. Let’s say you use it to identify overbought and oversold areas. That’s generally effective in ranging markets, but can give bad results when markets start trending.
Now you have identified a problem: you lose money when you use the RSI in trending conditions. So how can you solve this problem? You need to identify trending markets and avoid them.
If you are not good at identifying trends by analyzing the price, you might need another indicator that helps determine if a market is trending or ranging. A simple moving average could be helpful.
You could combine the two indicators and build a strategy like this:
- Wait for the RSI to reach overbought (>70) or oversold (<30) zones.
- When RSI crosses back from above 70 (short) or below 30 (long), prepare your trade.
- Confirm using the 100-period MA as a filter. If the price is hovering closely around the MA, take the trade. If the price clearly accelerates away from the MA, indicating a trend, skip the trade.
In this chart example on the M15 timeframe, you would have received three signals:
- First two signals: good entries with profitable outcomes.
- Third signal: a losing trade, unless you used a small take-profit (less than 15 pips).
- Later, you clearly see the price moving away from the MA, signaling a strong trend. At that point, you stop taking RSI signals until the market returns to a range.
This is just something I came up on the spot to prove a point, it’s not a backtested strategy with verified performance.
It’s just to highlight that indicators serve as tools for specific jobs.
Traders tend to use a screwdriver to hammer in a nail, and a hammer to screw in a bolt, and then complain that the indicators are not reliable.
Always use indicators for a purpose.
Edit: I’ve just noticed you would have also had a profitable long position on the chart I shared 
For sure, that’s smart. I like stacking signals too, it just feels safer that way.
Totally, they’re for confirming not predicting. Thanks for sharing your take.
Thanks for sharing this! I’ll check out that post, especially the part about the mistake to avoid. Appreciate the tip.
That’s a great analogy, makes it way easier to get.
Thanks for breaking it down and sharing those images, it really helps to see it visually.