RSI 5 Day Look Back for Entry and Exits

by Jake
(Thailand)

I have had very positive results using the RSI (Relative Strength Indicator) 5 day look back for entry and exits in my swing trades. The usual default of the RSI is 14 days on most chart settings (ie...Stockcharts.com). For a swing trader with a 2 to 5 day time frame the RSI (14) day look back is inadequate. I know this site advocates using the Williams % indicator to help with entry and exits but I find the RSI (5) to be more "robust". Just my personal choice.

The RSI(5) strategy is simply a timing devise for entry and exit, it is NOT a set up. The entry begins when the RSI (5) is below 30 and starts to move above 30. Once it crosses 30, I enter the stock. 80% of the time I will hold this stock until it crosses above 80. At this time, I sell the stock when it crosses below 80. The other 20% of the time, I sell before it gets to 80 because I can see from the chart (area of resistance) that it probably won't get to 80 so I just sell the stock when it hits resistance.

By the way, I do not use trailing stops. I use the RSI (5) 80 rule or sell when the stock hits a resistance price area. Also, I will usually sell the stock if it goes up 4 straight days in a row or goes up 10% in two days. I do not like to give back profits and so I am not willing to allow the stock to retrace any price that I feel will invalidate my risk/reward ratio.

Of course, I have my 2% stop loss in the trading plan when I enter and use the money managment sizing concept advocated in this site as well.

If anyone is interested, I will be glad to write up my swing trade set up for you to evaluate. In the meantime, I recommend trying the RSI(5) strategy for entries and exits. It can also be used as a filter or confirmation signal of the swing trade pullbacks.

Best of trading.

Jake
Thailand

Comments for RSI 5 Day Look Back for Entry and Exits

Click here to add your own comments

Oct 07, 2016
Type of stocks
by: Elle

Great article, I've been using the RSI for guidance but will try this. Are there any type of stocks, sectors, commodities, etc. that one should look for or avoid?

Sep 09, 2016
RSI 5 trading strategy
by: Luc

Hi Jake,
I would really appreciate it if you would be so kind as to send me your swing trade set up for me to evaluate.
I found your article a few months ago, and I finally got around simply testing your RSI 5 strategy to enter trades this week.
I made $2000 in 2 trades! Too bad it was on a demo account!
But now I'm really curious to find out in more details how you trade with this strategy...
Feel free to email me at luckei@zoho.com
Thanks Jake!

May 27, 2016
RSI (5)
by: Abu

use Finviz.com, then filter the list with RSI (below 30) :)

Mar 29, 2016
RSI Watchlists
by: Ryan C

Has anyone figured out a way to build a watchlist that you can rank stocks based on their RSI readings?

Jul 14, 2015
Still Appreciated
by: Jonathan

Hi Jake,

Just wanted to say thank you for, firstly, posting the original "RSI 5 Day Look Back..." article and your clarifications and comments over the years.

I noticed some differences between your earlier comments (c. 2008) and the more recent ones regarding your filters and which MAs you use for your initial watch list as well as the min. volume traded per day (from 20,000 in 2008 up to 500,000 in the most recent mention of volume I could find).

Did you change this based on your market observations or based on your trading results (or both)? I presume it's because 'things change' and you are always learning and refining.

After a mere 4 years of watching charts (FX, equities, commodities) I feel that your style suits me more. I've been using AmiBroker to scan and back test for a few weeks now and I've found that, when looking over the trade signals generated and taken by the system (admittedly based on my basic coding abilities), there are many trades which I would never have taken myself if I'd simply used AmiBroker as a scanner with some basic inputs and then checked each at EOD with no automatic trade entry. Again, it's possibly due to my lack of coding skill but I do like to have an automated method of scanning for opportunities based on rather broad criteria and then making the decision myself on whether or not to take them. Systematic Discretionary? :)

Thanks again for the interesting insights into your trading method!

All the best!
Jonathan

Jun 20, 2015
Appreciation
by: Alo Ekene

Jake you are a God sent.i thank you for revealling this.the strategy worth more than 4000 us dollar.once again thanks

Mar 03, 2015
Clarity On RSI above/below 30 and on RSI below/above 80 plus elaborate ur EXIT STRATEGY
by: Baig

May 12, 2008
My Swing Set Up (requested by Alvan)
by: Jake

Jake it is just amazing to read ur artcile on RSI 5 PLUS ur trading setup

jake need clarity on BUYING & SHORT SELLING tht is RSI ABOVE/BELOW 30 & RSI ABOVE/BELOW 80.THAT is when to Buy & when to Short Sell as RSI below/above 30 & below/above 80.



PLUS need to know your EXIT strategy of the(May 12, 2008
My Swing Set Up (requested by Alvan)
by: Jake)

Oct 23, 2013
Set Up
by: S B

Hi Jake,..wonderful entry/exit strategy..it helpmed me a lot...thanks for the posting....for those who wants to know about trade set ups, look for divergence set ups...I personally use it almost all the time....just do google with macd divergence if you don't know about divergence....try trading the hidden divergence for consistent low risk entry/exits...Good Luck!!!

Sep 08, 2013
STOCKS/INDIA.
by: RAJNISH SINGH

Dear Jake ,
I followed your article with interest. I am a swing trader , also now look at day trades. If , I like the position/charts , I carry forward my trade.
You mentioned that you keenly follow 52 week highs.
On the contrary , I follow 52 week lows. As you are aware that , in a Stocks yearly cycle , it will make a low. Even the best of stocks do that. Though good stocks may fall 10/20 % another stock may fall,
20/30% , but may be fundamentally a good stock. May fall due to news/qtly. results etc.I have followed this pattern . Infact certain stocks fall , to a 52 week low and end up in green the same day, and continue to rise for the next few sessions. At times / most of the time operators are at work.
Coupled with your strategy of RSI/CCI AT 5 , I feel that this holds promise . As there are more stocks touching 52 week lows than highs.
Please let me have your thoughts on this.
Warm Regards,
R.SINGH.

Aug 23, 2013
Help
by: Anonymous

Hi there I just wanted to know how you setup your charts for the entry and exit also how do you setup your charts to any luxe stocks for potential trading. I'm a beginner need basics help this strategy does help but need more if possible I'm looking to do swing trading at first and move to possibly later on to day trading


If you need to reach me my email is nerdoman0@gmail.com


Any tips and suggestions from anyone helps tremendously


Thanks

Aug 21, 2013
RSI-5 Draw Down Periods
by: Stock Hunter

In regards to Anonymous' comments, we all have to know that there is no "Holy Grail" and all trading strategies will have its draw down periods. What separates a professional and a newbie trader is that a seasoned swing trader will be able to recognize this recent strong uptrend and wait for a divergence signal to consider shorting. Also, remember to trade with the trend, that would keep myself(and Jake) from trying to go against the trend. In my case, I know that on this strong uptrend the RSI(5) will stay above near the oversold zone (>80). This is where I like using the CCI(5) to look for entry signals in conjunction to the RSI(5). Studies have shown that traders that consistently which strategies during draw down period instead of trading smaller position size or waiting for the trend to reverse are the ones losing money and quitting and develop negative attitude toward any given strategy. Trading is not a sprint race, but a marathon.

If you liked with you read, you can follow me on Twitter "@StockHunter" (red bull icon).

Bye for now,
-Stock Hunter

Aug 20, 2013
5 day rsi by Jake
by: Anonymous

I imagine Jake eventually lost a lot of money using this strategy and quit trading. You should be glad he didn't provide the info many of you have been asking for. Better to do your own research and find a strategy that works for you.

Jul 28, 2013
Pls mail
by: Mandir

Hi ,

I want to square off all my stocks with in a week.
I need to know ,time frame(duration of each candle stick on a chart(minute, hour, day... details pls)
and period of chart(starting and ending time of chart)and RSI values (30-80) and picking stocks for this analysis. Please mail me @mandirkumar@gmail.com

Jul 27, 2013
Interested in set up
by: kboe37@gmail.com

Would love to receive RSI (5) trade set up info you offered. Do you enter trades on hourly charts when trading? I am thinking weekly options.

Jul 08, 2013
RSI 5 d strategy
by: Anonymous

Can this be applied to both bullish as well as bearish stocks.

Jun 28, 2013
Charts worth a thousand words
by: CCI(5)

Check out posting dated Dec 30, 2012 by Stock Hunter and check out his tweets Using the CCI(5) which is very similar to RSI(5). Been using it the last three years with a 70%+ success rate for swing trading.
Stock Hunter (red bull icon) on twitter to view charts as most people are asking for.

Jun 26, 2013
Need chart more than words
by: 1378

Dear Jack,
I believe you have received a lot of requested regarding please submit your chart to our personal Email. but yet until today we don't receive your response. please explain why you can't forward your chart or platform to us since everyone agreed picture is better than thousand of words. Thanks

Jun 26, 2013
Swing Trade Setup
by: Dave

Hi Jake,
Thank you very much for the write-up you provided about your 5 day RSI strategy. I would definitely like to see the information you offered about your swing trade setup.

Thank you very much for sharing.
Dave
sunster789@yahoo.com

Jun 16, 2013
swing trading
by: Anonymous

hi. my name is sabato and i'm an italian trader. i'm a swing trading follower. i experienced many trading systems and i think this is the only one that really work well. could you give me more information about your method? i'm a swing trading improvement hunter.
all the best my friend

Jun 14, 2013
your strategy
by: Anonymous

Hi Jake,
Can you email me your strategy. my email is coryrwilliams@yahoo.com


What are your trade entry parameters, exit parameters?

Any and all info would be extremely helpful.

Thanks
Cory

Jun 01, 2013
RSI 5 day Look Back
by: James

Hi Jake

Appreciate your RSI 5 day Look Back advice model, thanks in advance
James
jamesbrawnerjr@gmail.com

May 26, 2013
Swing trade set up
by: Vincent

Hi Jake,
I am very interested in your swing trade set up strategy, please send me via my email :

Poon_k@yahoo.com

Thanks a lot

May 26, 2013
Intraday signs
by: Altern

Thanks for the detailed reply, Jake.
Could you also refer to the issue of intraday signs you look for?
You said your time frame is five days. You also said "when I enter, I use the 15 minute chart to give me some safe areas (lower risk) to help my risk/reward ratio".
How do you detect safe areas in 15 minute charts?
What indicates good enough risk/reward ratio?
Do you measure/calculate/estimate this ratio?

Altern

May 25, 2013
Need chart more than words
by: 1378

Yes, l strongly agreed. Pictures much better than words. I also need your chart. Please share your chart to my Email address : gwisdom1378@gmail.com THANKS

May 24, 2013
Charts
by: Jake

If you want to see charts applying the Relative Strength Indicator (RSI), I suggest you go to www.stockcharts.com. This website has tutorials on all the indicators you will ever need, including the RSI. The site will also help you learn about candlesticks, trendlines, momentum, swing trading strategies, and pattern reading. The site has a wealth of information. You can play around with the various lookback days on all the indicators. The days are adjustable. So, you can plug in 5 days, or the default of 14 days and see what works best for you in your trading time frame.

May 24, 2013
RSI 5
by: Naresh

Thanks jake for instant reply, still small clarification needed, if u dont mind me asking, so u apply RSI 5 on daily chart ? and u look @ just 5 candles, as week is only of 5 days? if u please dont mind can u share a chart as picture is worth more than words as im weak in understanding theory,
my email id is naresh.rayikanti@gmail.com

May 22, 2013
more about RSI(5) look back system
by: jake

Hi
The time frame that I trade in is between 1 to 5 days, that is why I use the RSI(5). The (5) represents how many days the RSI indicator goes back in time, 5 days. I never day trade, meaning open and close a trade the same day. I always stay overnight. So, precision for the entry price is not part of my system. I can be wrong on the entry price by some margin and it won't affect the trade as long as I can wait out and see if my trade develops in a positive outcome. I do not trade in a smaller time frame than one day, one complete candlestick of 24 hours. I do not use 5 minutes, or 15 minutes, or 30 minute time frames.

I often get out of a trade if I feel the trade has run its course. Meaning, I either have lost or won the amount of money I suspect completes the trade. I am a discretionary trader not systematic, therefore, all my decisions are based on random suspicious events, not mathematical algorithms. I do not care if I am correct or not. It doesn't matter. All I care about is if my winnings exceed my losses.

I do not play gaps. Meaning, if there is a recent gap in the chart within about 3 months time frame, I usually stay away especially large gaps. If I am in a trade, and the trade gaps up to my benefit, I stay in the trade as long as the trade stays above the gap. I move my trailing stop up to the low of the gap. If the trade gaps down, against my trade, I exit quickly.

For me, volume isn't really an indicator for a trade, rather, I use volume to make sure the trade has proper liquidity. I do not trade thin traded stocks. I like at least 50,0000 shares traded daily, more the better. I might look at the On Balance Volume indicator to give me some feel for supply and demand, but I don't base my trades on its measurements.

I usually only have 1 to 3 open trades per week. I find more than 3 open trades too difficult to keep up with. I keep my position size to no more than 5% of my balance in one trade so at anytime I am only exposing 15% of my balance. Other amounts are allocated to other purposes such as dividend stocks, or less risky asset allocations.

The RSI(5) lookback system is a risk on trade and I limit my risk on to 15% of my total balance.

May 21, 2013
TIMEFRAME
by: naresh

Hi jake rsi 5 should be used on 5 OR 15min OR 30MIN timeframe ?

May 21, 2013
Questions regarding RSI(5) trading method
by: Altern

Hi Jake.

I really like your approach. It sounds very logical and easy to comprehend. Could you please comment on a several points I have?

1.You said "The other 20% of the time, I sell before it gets to 80…". What are the signs at these cases? What indicates it won't get till RSI(5)=80?

2.How do you deal with gaps in trade you have? Do you immediately close your trade?

3.Do you use volume as entry/exit indicator or is it there for stock screening purposes only?

4.Could you elaborate on usage of flag pattern? How do determine it started? How do you determine it's over? How is it combined with RSI(5)?

5.How many trades are you in, using your method, at any given moment? Or, alternatively, what portion of your trading money is inside trades? I do not mean right now. I mean statistically, over time. Are there times when you don't find trades (that fit you method) at all for long periods of time? Or, on the other hand, how do you deal with too many candidates?

Thanks in advance,
Altern


May 03, 2013
time frame to enter and exit position
by: 1378

May l know what is/are times frame l can apply?

May 03, 2013
RSI 5 model
by: SilverClip

Jake: Do you have a spreadsheet that you can email me using those types of filters?


Mar 05, 2013
short selling
by: jake

Hi
The RSI can be used to help guide your entries and exits in short plays as well as long plays. Mostly you just reverse the signals. For example, once you have established that the market is in a bear cyclical trend, and the smaller weekly trends are also down, then line up your trend lines with support and resistance areas. Scan further into the day time frame and set up the RSI(5) so that when your market is above 80 and hit a resistance area, and starts to move down you could enter a position.

Exit your position when the RSI(5) is below 30 and starts to move upwards.

Make sure your moving averages are also moving downwards to confirm your bear trend.

I have never had much luck shorting because you got to be very quick. Also, remember that if there are a lot of shorts and bear players, a short squeeze can hurt and rarely does the RSI(5) signal a short squeeze.

Cheers.
jake

Mar 05, 2013
shorting with 5 rsi.
by: chakraborty,c.k.

the strategy is indeed effective.but is there any shorting set up in 5 rsi trading strategy?

Feb 22, 2013
developing the watch list
by: jake

Hi
I am a discretionary trader. This means that I do not have a mathematical method or system for choosing which stocks to play that can be replicated by others. As a discretionary trader I play stocks based on my own unique way of visualizing the patterns I see on the chart. I give these patterns meaning or significance based on my years of experience playing those patterns. So, when you ask me how do I further define my daily watch list I can tell you generally what I look for but this is not an objective back tested, statically valid experiment. My way of playing stocks i neither correct or wrong, its just my unique style.

For me the most important aspect of trading is to know what all the major broad indexes are doing, are they trending up, down or ranging. I look at 3 year, 1 year, and 6 month time frames. I like to know what all the sectors and industries are doing. I use www.etfscreen.com to help me get a feel for the relative strength of all the markets. I spend about an hour a day pulling out about 100 charts and examining the trends. I want to know what Gold is doing, all commodities, agriculture, the overseas markets, everything. I want details.

Once I know the markets, their trends, I select the strongest markets to play that are going up. And that includes short selling if markets are down like in 2008. I want to follow the strongest trends. I like to use the 20 day, 50 day and 200 day moving averages to help me know the trends.

Simply, I look for the strongest trends, I then find areas of support, I wait for the short term traders to sell and take their profits, and then I enter on the small dip they created in the chart.

Many people who trade the markets use an algorithm or a back testing model that they can follow. As for me, I don't. I've tried many different models and black box systems and they do not work for me. Its my personality. I just can't trade using a method designed by others.

I trade with my eyes. I enter and exit based on what I see on the charts. I trust my instincts more than theories, math, or a designed system.

Its like this; how do you catch a baseball? As the baseball is projected to you do you measure the wind velocity or air currency to determine how you will catch it? Do you calculate the distance in mathematical terms to know how to place your hands to catch the ball? Probably not. Well, that's how I trade stocks. Same as I catch a baseball. I just look at it and trade. Same, I just catch the baseball. I have no idea how I do it...I just let my body catch it. Same with stocks. I just enter and exit based on what I see.

Too simple I know...but works for me.

cheer
Jake

Feb 22, 2013
Software
by: HSH

When picking out the stocks you want to watch more closely(50+/-), what are you looking for? A trend in the stocks performance? Thanks in advance.

Feb 22, 2013
Software
by: HSH

Excellent. Thanks for the quick reply. Im really looking forward to testing this out.

Feb 21, 2013
Data mining
by: Jake

Hi
I use www.finviz.com to generate my initial watch list. Also, www.chartmill.com is also very good. You can play around with the screens to suit what you're looking for, but in general, my screen consists of:

Price over $10
Average volume over 50,000 shares traded daily.
20 day moving average above 50 day moving average.
Price 0-10% below 52 week high.
Performance more than 20% up for the 52 weeks.

This screen gives me about 500 stocks to look at. I then use the "charts" display to look at all 500 stocks and just scroll down the page. It takes about an hour to look at all 500 with a glance. I then write down about 50 stocks that look good from my eye level.

With these 50 stocks I go to www.stockcharts.com and put up all 50 stocks. I look at the 3 year, 1 year, and 6 month charts using the 20 day, 50 day and 200 day moving averages to help guide my eye. I choose stocks with very nice 45 degree angles going "north" from the bottom of the page to the far right edge. I don't like stocks that meander all over the page. I look symmetry.

So from the 50 stocks I might get 20 stocks that have very nice price prints that are consistent and appear easy to see trend lines, support and resistance areas. I then draw some columns on paper and write down the 20 stocks with price areas for the moving averages, pivot points, support and resistance and finally the high and low areas.

After the market opens for 1 hour, I then see how each of the 20 are behaving. I usually watch them all for about 30 minutes to an hour and choose 1 or 2 or maybe 3 that behave very easily. By this I mean the spreads between bid and ask prices are very narrow, maybe 1 or 2 pennies. I don't like jumpy stocks or stocks that are difficult to buy. If a stock I like hits my pivot point areas, and the rest of the market is cooperating, and the volume is starting to come into the stock, well, I just might purchase it assuming all other criteria is ok. No major news, stock not going ex dividend, or earning reports coming soon.

The RSI (5) is also on my screen. I like to see it hooking upwards. It will be rising from below 30. So, once the RSI(5) starting going up, (price is going up), and the trend appears to be resuming then I that might warrant an entry.

I never risk more than 5% of my total balance to one position. Most of the time its more about 3%. My stop loss is usually between 5% and 8% below the entry price. I don't use price targets for profit taking. I tend to just let the profits go until the pattern I am trading breaks down.

Jake

Feb 21, 2013
Software
by: HSH

Hi Jake. I have read through all the comments, and I have one question. What kind of software do you use to generate the list that fullfills your filters? Are you using a site, some software, or are doing it manually?

Thanks in advance.

Feb 15, 2013
Platform
by: 1378

Dear Jake,

Do you have email address, so that I could send you my plantform in excel to you.
Actually I'm not full time yet trader.
I have employer, that's why I cannot always look at running trend chart.
What can I do, I need to check price by hourly then I will key into my excel file.
So that RSI will prompt to me result.

My email address is: gwisdom1378@gmail.com

Thanks

Feb 14, 2013
day trading
by: jake

Hi
If your time frame is 60 minutes then sounds like you are day trading. I do not day trade. My time frame is 5 days. I hold the stock for as long as the pattern confirms itself. When the pattern that I bought breaks down then I sell the stock.

Since I do not work in 60 minute time frames I hesitate to give you a suggestion. But in general, the best strategy is for you to paper trade various moving averages within your time frame and keep accurate and precise records. After some time you will begin to get a feel for what moving averages work best for your time frame according to your win/loss ratio.

One common idea is for the trader to use one moving average that is a much longer time frame to help set up the trend, then, switch to the shorter time frame to help with your entry and exits.

So, for example, if you are using 60 minute time frames you might consider using the 5 day moving average for your long term trend, making sure it is going up, and using a 15 minute time frame to judge a possible entry.

The website, www.bigcharts.com is an excellent free site that has these moving averages already in default. Just load up your symbol and chart out the moving averages and time frames you want.

Jake

Feb 14, 2013
60min for SMA setting
by: 1378

Dear Jake,

Good morning.
So may I know if I'm using time scale 60mins, so what should I set for my SMA?

Thanks

Feb 14, 2013
Trend indentification
by: jake

Hi
Oscillators have absolutely nothing to do with trend identification. They only measure price swings within a trend or within a range.

If you want to find trends, you have several options. The easiest is probably the moving averages. First select a time frame for the trend you are seeking. If you want to find a one year trend stick with the 200 day and 50 day simple moving average as your guide. If you want to find a 3 month trend, stay with the 50 day and 20 day moving average trend.

Nothing magical about these numbers, (periods), its just what is most popular. You can play around with the periods to find something that suits you better.

Another way to identify trends is to simply draw trendlines. It is easy to learn. Many websites can teach you how to draw a trend line if you don't already know.

Another way, is to look for stocks making new 52 week highs. If the stock is hitting new highs then most likely it has a strong up trend.

Oscillators just help you with entry and exits, not trend identification. So, first decide on your time frame, then find the trend, then choose your entry area, define your risk, select an exit target, then execute. Simple as pie.

good luck
jake

Feb 14, 2013
oscillators v.s. SMA
by: 1378

Hi Jake,

May l know your opinion regarding oscillators vs SMA; which one is more accurate chart to measure up trend and down trend?
Thanks

Feb 14, 2013
short selling
by: jake

Hi
As a general rule I do not short uptrending stocks. Never. I only short sell in bear markets and I go long in bull markets. Just common sense although I am always amused at how uncommon this mistake is.

So, now, the US markets are all in a very strong bull market. I would not short stocks now. Just because the RSI(5) is moving down from 80, does mean to take a short position especially if the stock and the market are in strong uptrend. You can do two things:

1) take profits when the RSI(5) moves down from 80.
2) Hold the stock and wait out the move to see if the stock climbs higher.

Either one is ok. You might consider taking profits then wait for the dip to stop. When the stock goes back up to resume its uptrend, climb back on the stock.

Remember, the RSI is only a guide to help you enter and exits trades. It can be a signal if you want it to although I prefer to rely upon my own judgement, the RSI(5) only gives me a clue.

Again, never short uptrending stocks and never go long a downtrending stock unless of course you like to gamble and find it amusing to do so. In that case, enjoy.

jake

Feb 12, 2013
can i do short?
by: 1378

Dear Jack,
lf the chart show me now SMA is up trend but RSI-5 show me from 80 drop to 70.
So can l do short now or I just can do long but not do any short because my SMA chart show me as up trend?
Thanks

Feb 09, 2013
more about trading
by: Jake

Hi Ron
I use the RSI with a 5 day look back, not 14 day look back. The reason I do this is because my average holding period for most of my trades is 5 days. But its important to understand that there is nothing magical or correct about 5 days. It is simply the number I use that fits my trading style. If you intend to hold a stock for a longer period of time, say several months, then a 14 day look back would probably suit that trading style better.

As for Apple stock (AAPL), I wouldn't go near it. Not because its a bad company or bad trade. It's just that I do not trade stocks in a downtrend. AAPL is in a terrible downtrend at the moment. Nothing wrong with the company per se, its just that I don't trade weak stocks. I trade strong stocks. In fact, I only trade stocks that are reaching 3 year highs and are double every few years.

Also, I never day trade, meaning I am in and out of a trade in one day. In fact, I almost always give my trades a few days to prove if I am right or wrong. Usually within 5 days I know if I was correct in my trade or not.

Again, the RSI(5) is NOT a trading system. Not even close. You can substitute the RSI with any other oscillator and probably get the same or maybe even better results. The oscillator is only to be used as a guide or at best a signal. But the ultimate decision to buy, sell, or hold is more of an intuitive calculation based on the traders experience.

For me, my favorite and most successful trades have been with very strong stocks, making new highs every few weeks, that form a high tight flag, maybe retreating for 3 or 4 days, but never drop below the last high, AND then the RSI(5) gets around the 30 mark.

My goal is never to miss a great trend. My system does not care when I enter or when I exit, only that I am in a great trend and make a profit from it. Or, if I am wrong, that I get out of the trade with a small loss.

Not sure if I answered your questions or not. But, do research on the flag pattern and see if you can mix it with an oscillator that works for you. Then, make sure you trade strong stocks that have very nice and powerful up trends. If you are going long a stock do not buy down trending stocks like Apple. Unless of course, you are a gambler. Personally, I do not like gambling so I tend to stick with trades with higher probabilities. Just my style.

Cheers
jake

Feb 09, 2013
RSI (5) ?
by: Ron

Jake, am i understanding this..you set the rsi @ 5 not the default 14 setting? what time frame do you set your chart for..ie 5days, 1 month, 3 months? The reason i ask is for example apple in a rsi(5)setting with a 5 day chart, you would be buying and selling multiable apple stock all day. But you said you tend to stay in a trade for a few days?
what am i missing.

Thanks for your time

-Ron

Feb 08, 2013
RSI, Indicators, and timing of moving averages
by: Jake

Hi
When using indicators, oscillators, or moving averages as guides to help entry and exits on your trades, there is no "right" or "wrong" numbers, or better numbers than other numbers. I suggest you don't get wrapped up about trying to figure out THE best timing sequence as an objective fact.

Rather, choose settings that fit your particular unique time frame. For example, the majority of my trades last about 5 days. I know this because when I review my trading pattern over the last 12 years, 5 days is the average time I tend to hold a trade. So, with this knowledge, I use the RSI with a 5 day look back.

I use moving averages 20, 50, 200 days to help guide my eyes over the chart. There is nothing special about these numbers. A trading system can be made with any multiple of numbers; some people use 8, 13, and 20 day moving averages. It really doesn't matter as long as it works for you and your particular time frame.

I suggest you just experiment and try different combinations and see what patterns work for you.

Cheers
jake

Feb 08, 2013
my current setting
by: 1378

sorry, may be i need to explain further on my setting. Currently my: Trade Malaysia indice. RSI_5, SMA_3,8,15, timing chart_60mins.
Anything is wrong on my setting?
Please advise or opinion how you would do?
Thanks

Feb 08, 2013
Trade futures indice but not any share counter
by: Anonymous

Hi Jake,
Thanks for your share info here.
I'm now doing futures indice trading.
if i set RSI, what is the best time chart scale i can use to give me the best decision make out and in?

Thanks
from gwisdom1378@gmail.com

Jan 27, 2013
rsi(5) is not a system, its an entry guide
by: jake

Hi Vincent
If you read my earlier posts you will see that I use the RSI(5) simply for guidance on an entry helping me to quantify short term dip (usually 3 to 5 days). That's all it does, no more and no less.

Regarding the question you asked me about the fundamentals of the stocks you intend to trade, I can only tell you what I do, not what I advise others to do. Having said that, I do not allow the fundamentals of a company to affect my decision making process. I might look at the fundamentals just for curiosity but I do not trade a stock using fundamental data.

Making decisions is at the heart of the trade. I choose to use only one data point to guide my decisions and that data point is the price. I try to find a stock when the trend is strong demonstrating it has the capacity to rise quickly. I wait for a 3 to 5 day sell-off which usually brings the RSI(5) down below 30. I enter when the stock begins to rise off that low.

I hold the stock as long as it is above the price I paid for it.

I have two exits; one is a stop-loss which tends to be between 5% and 10% below the price I paid.

My profit trailing stop is about 5% below the nearest high. As long as the price stays up above the last high and rises, I hold the stock. I sell when it breaks that support which tends to be about 5% below that high.

All this is complicated enough. No need to further complicate it with fundamentals. Remember, I only intend to rent the stock for a few days, maybe a couple of weeks. I do not feel I "own" the stock or that I am part of a business.

Stocks for me is to trade, not to own, therefore the fundamentals of a company do not matter to me. Fundamentals are important for investors who intend to hold the stock thru thick and thin business cycles.

cheers.
jake

Jan 27, 2013
daily charts
by: Anonymous

Rsi 5 is good combined with the 50 sma ...once it crosses above or below this 50 sma line go in that direction.We are looking for 3 to 5 bar or candle pullbacks back or close to the 50 line of the rsi...not in the oversold or overbought regions.The 3 to 5 bar or candle entry needs to be in the top or bottom 25% close and not in the 70 or 30 area of the rsi.In my opinon there is no such thing as overbought or oversold conditons but i like trading the meat of the trend.This is on daily charts.Hope this helps.

Jan 01, 2013
RSI 5 Day Look Back for Entry and Exits
by: Vincent

Hi Jake,
I am Vincent.You said RSI 5 is a good indicator for a stock entry or exit point. Do you mean just look at RSI 5 of any stock roughly will tell when is the good entry or exit point. How about those stocks of highly speculative, do we need to check the fundamental and background of the stocks also? Thank for your comment.

Dec 30, 2012
CCI(5)
by: StockHunter

I too started off with the RSI(5) and was succesful. I now traded in the RSI(5) which is a lagging indicator for a leading indicator which is the CCI(5). My winning rate increased from a 70% to 80-90% win rate.

Anyone interested can follow me on Twitter... StockHunter (red bull icon).

Dec 05, 2012
intra day trading
by: vikram patel

Dear Sir
can i use rsi 5 for entry exit
IF YES SEND YOUR BEST PARAMETER FOR INTRADAY TRADING
PLEASE REPLY ME AT
my e mail vkpcomo54@rediffmail.com

Oct 27, 2012
thanks
by: Treso

Hi Jake,

Thank you for your reply. I will follow your tips and in some time I will post some of my results. Thank you very much.

Treso

Oct 26, 2012
more on timing entry and exits
by: Jake

Hi Treso
For me, I don't use the RSI(5) as a mechanical decision making tool. I am not strict about letting it tell me when to enter or exit trades. I use it as a guide post to let me know when extremes in price are being met.Extreme readings are usually under 30 and over 80. If I am swing trading, meaning two thing; (1) my time frame is 1 to 5 days and (2) I enter on a low swing of a price movement into support and exit on the high swing into resistance. That's it. The RSI(5) can let me know about extremes in price which can make me feel better about the odds of the swing going my direction.

If the RSI(5) is in the middle of the range, say between 40 and 70 its not helpful to me so I don't do anything, I don't enter and I don't exit (if I have a trade on). But, after 5 days, if the trade still doesn't move in my direction I may choose to take a time stop. It depends if I see better opportunities and need the cash for that new trade. I like taking small losses. Doesn't bother me a bit.

Also, as I mentioned to you before, I am a discretionary trader. I make decisions based on what I see on the chart. In the old old old days, you could call this work, "tape reading".

Remember, I don't believe in "right and wrong" about how to trade stocks; all that matters is that you can make money fairly consistently and that the system you choose is simple and easy to perform. My test for if a system is simple is if I can explain it to a 12 year old and they understand.

I always trade in the direction of the major trend ALWAYS. As soon as I see the moving averages starting to crossover in various time frames and support after support is being broken (on the down side), then I go short. When the moving averages are crossing over upwards and resistance is being broken, making new highs, I go long. Simple. You can tell that to a 12 year old and they get it. Thats as simple as it gets. Thats what I do.

I suggest you not make a drama about trying to figure out the BEST entry and exit schemes. Rather just experiment, paper trade, and see what works for you. Keep a journal and record your experiences. Maybe one day you will discover that the entry and exit prices are not the most important part of your system. Rather focus on money management and risk control, that is your staying power.

Jake

Oct 25, 2012
other questions
by: Treso

Hi Jake,
Thank you for your reply.

I have other questions.
First question is what about your target variation in the stock price. You said once the stock price cross the 80 RSI(5) indicator you sell your positions. If the variation hits 10% you sell. But sometimes the price just start to walk sideways and the RSI take too long to reach 80, or even worse, the price and RSI start to fell. What you do when it occurs?

Second question is about entry timing. Craig in this website says to wait and time our entries. Do you do that? I say, you wait the 10SMA about 30EMA for long positions? Or you dont care about the market index?

Thanks

Oct 25, 2012
back testing a system
by: Jake

Hi Treso
I live by my core belief that the only thing in the world (and the markets) that is certain is "Change". So, I always give myself the opportunity to change my mind and be inconsistent because for me the definition of wisdom is usefulness. If the idea/concept/behavior is useful, then, it is a good decision to apply that method. What was useful yesterday, last month, last year, or ten years ago may not apply for conditions on the ground today. And with today's technology change comes extremely quickly.

For this reason, I don't put much effort or time in backtesting systems. What worked in the past may or may not have any relevance. I believe many people spend time and effort back testing systems because they don't trust what they see. They want the math to back up their ideas. That's ok, if it's useful to that person to do so, then fine, not an issue. But for me, I rely more upon my eyes, what I see happening on the charts. It's not right or wrong, its just the way I experience the reality of what is happening in the markets. The math is nice to play with, fun, but I have taught myself not to rely upon the odds based on statistics but rather on what I observe.

So, regarding your question about the probabilities of an RSI(5) entry exit system I don't have any data for you cause I never back tested the system. I simply use the RSI(5) as a guideline to help visualize where the best entry and exit area might be. You can adjust the number to (2) or (10) or the default of (14) it all depends on your particular trading time frame. For me, I trade in a time frame where the average holding period is about 5 days.

Secondly, you asked me if I use the same signals as 5 years ago. Basically, yes. But, I have learned a lot more about markets and how I respond to markets over the last 5 years so I believe as I grow as a trader I am making more (and better) decisions based on how I "feel" the market is moving and less on indicators or oscillators. Again, I am a discretionary trader and rely more upon my observations on the charts than numbers.

As an analogy, I use indicators and oscillators like a pilot might use clouds to navigate thru weather but his flight plan is not dependent upon those clouds unless of course its a hurricane.

Lastly, for me, trading the markets is as much an exercise about learning how I respond to the market flow as it is about making a living. There isn't only one way to do it. In fact, the beauty of trading is that you create your own market reality. The market gives you the raw data and the creativity is how you use it.

Jake


Oct 25, 2012
statistics
by: Treso

Hello Jake,


Sorry about the english, it is not my main language.


I loved this website because I could understand many things in a simple way.

I am starting to do swing trades. I wish to build some statistics about my strategy and I want to know what can be a good win chance(%).

I liked your entry/exit strategy and I wish to give it a try. Your first comments started in 2008 and I wish to know if you modified/improved your strategy or still using the same signals?


Thank you,
Treso

Oct 24, 2012
About Timing The Market
by: Jake

Hi
The question to me is "do I time my entry into the market."

Truth is, ALL entries are a product of time, no getting around this fact. Even people who DON'T "time the market", but rather choose an arbitrary "time" to enter the market are still timing the market BUT the difference is this: They are not consciously deciding the time to enter by using a method or system for entrie rather they are jumping in the market based on a pre-selected date aka..dollar cost averaging. But this is still timing the market, just not using any filters or market observations.

Having said that, I play both the long and short side of the market. I am as comfortable shorting SPY as I am going long. For me, shorting SPY is just like playing backhand in tennis. Once you get used to it, it adds a whole 'nother tool to your game. And, I only short SPY or IWM, that's the only two instruments I short.

So, the first question I ask myself each day is this: "Am I long or short the market?" I use 3D trend evaluation (short, intermediate, and long term moving averages) and make a decision on how I feel the probabilities look for the next 3 to 5 day outlook.

If I am short, this does not necessarily mean I will sell all my long positions, but I might hedge them with by shorting SPY.

I use the 50 day moving average for my long term base line. My 30 day MA is intermediate and 10 day MA as my short term. I run my trades between this terrain.

Also, about entries and exits, one of my rules is not to make it a DRAMA. Entries and exits are an "area" for me not a number. It is true that I will get filled with a very specific amount, but I always have a entry and exit area space that allows for bad fills and poor executions. Point is, I don't allow myself to play the hesitation game because of a few pennies either way. I use limit orders to enter and market orders to exit.

NO DRAMA means that I just enter when the signals say "go" and I don't wait for the last 1/8 move above a most recent swing high. In fact, I love to enter as the stock is moving to its next low swing cause the risk/reward improves. Also, I don't watch the market all day (night time for me). I just enter at a time when I think the risk is lower than the potential for reward.

I really believe in making swing trading as easy as possible. I try and focus on my execution and performance and let the outcomes take care of themselves.

Jake

Oct 24, 2012
question
by: Anonymous

Hey Jake,
Nice tips!
I wish to know if you wait to time your entry with the market?

I wish you good trades.

Oct 18, 2012
scan for candidates
by: jake

Hi All
I used to use Stockfetcher.com which I highly recommend. But currently I use finviz.com as I can scan the charts much quicker as they post 14 charts on each page. My filters change around but mostly they encompass average volume of 100,000 shares traded per day and price over $10. Then, I play around with other filters such as the 20 day moving average above the 50 day moving average or the weekly performance is down. I don't like to use much precision when I am creating a watch list. My trading style is very discretional not mechanical. I am a highly visual type person and so prefer to "feel the pattern", numbers, indicators, oscillators and such may help guide my sense for where I think the asset is going to go, but I rely on my eyes and feel. Much like trying to catch a football, meaning, I just let my body catch the ball and I have no idea HOW my body is doing it per se, but it just happens. I know for many readers this style of trading may sound a bit "loosy goosy" but it's worked well for me over the last 12 years. The real issue for me is self-control and learning how to be my own best trading coach.

Good luck and thanks for your comments

Aug 30, 2012
Set ups - great
by: M Bennell

Jake,

Would like to take you up on your offer: please share the set-up methodology!

Jun 26, 2012
your system
by: charley

where do you find your candidates?

Oct 27, 2008
Response to Khan's comment
by: Jake

Hello Khan
I use 5 days as my time frame. That is, I look back over the last trading week (5 days in a row) for any set-ups. I will also analyze the longer trend using the 20 MA, 50MA and 200 day MA to make sure I stay on the right side of the longer trend. Then, when I enter, I use the 15 minute chart to give me some safe areas (lower risk) to help my risk/reward ratio. Anyway, to answer your question, I use 5 days as my time frame for trades.

Right now I only trade on the short side using ETFs such as QID and SDS. No long trades at all. Stay on the dominant side of the trend.

Wait for the RSI(5) pulls down under 40 if possible but recently, with such a strong downtend, the pullbacks aren't so strong and I am taking RSI(5) under 50 as entry signals if they hook up on the day of entry.

Good luck
Jake


Oct 24, 2008
RSI (5)
by: Anonymous

Jake
RSI (5) % differ with time frame. would you please suggest what time frame you use?
Thanks
Khan

May 22, 2008
Stop Loss Swing Exit (Requested by Lou)
by: Jake

I believe that consistently successful swing trades are based on 80% psychological factors, 10% system/method, and 10% luck.

The pychology of an entry is 80% hope and 20% apprehension. The psychology of an exit is 80% regret and 20% relief.

With this model as my meta-framework, my exits are based on making exit decisions that minimize regret. Regret comes in three forms:
1) Regret that I exited too early and left money on the table (the stock goes up without me).
2) Regret that I exited too late and the market took back some or all of my profits.
3) Regret that I took the trade in the first place and have an immediate loss of capital (ie..stop-loss is hit).

I have two swing trade exits; a stop-loss exit and a profit-taking exit.

Stop-Loss Exit (long trade): This procedure is fairly mechanical. The Stop-Loss is a price which, when penetrated by the close of the previous day, violates the assumption of my entry.

There are two parts to the stop-loss exit:

Part 1: The Signal. The signal is the close of the previous day. If this close is beneath the price that violates the trade then a sell signal is registered in my trade log. The stop-loss price can be any logical marker on the chart depending on the time frame I am trading such as a moving average (10 day, 20 day, 30 day,), a price congestion area, the lowest bar of X days, it doesn't matter where I place my stop-loss price as long as it makes sense via the chart.

Part 2: After the first hour of trading the next day after the signal was triggered, if the stock continues to go down beneath my stop-loss price then I quickly sell the stock.

If instead, the stock whipsaws back above the stop-loss intraday and holds up at the closing, then I hold for another day. I stay with the loss until the stop-loss is violated at both the close and the next day after the first hour of trading.

My position size is such that my risk never exceeds my regret loss amount.

Rule 1: I never lower my stop below the original stop-loss price I set at the entry.
Rule 2: I never second guess my stop loss sell decision.
Rule 3: I wait for the signal first (close of previous day) before I make the stop loss sell decision the next day after the first hour of trading.
Rule 4: I know my Regret number (amount of risk) and never exceed that amount.
Rule 5: In case of a catastophic maximum negative price excursion against me (usually 10% or more) intraday, I always sell first, ask questions later.

I will explain my profit-taking exit in another comment on this thread tomorrow.

Jake
Thailand


May 21, 2008
excellent!
by: Lou

love the tips, thank you.
would very much like to hear your detailed explanation on the way you go about the other half of the trade (exit).
thanks again,
Lou

May 18, 2008
Nice System!
by: Craig

Hi Jake,

Thank you for posting a very detailed explanation of your trading system. I know a lot of traders will really appreciate your contribution!

May 12, 2008
My Swing Set Up (requested by Alvan)
by: Jake

My swing trades only use three pieces of data: price, volume, and time. Absolutely no fundamental information at all.

Filter #1: Price is above $15 and average volume (90 days) is above 20,000 shares traded daily.

Filter #2: Price is above simple moving average (30).

Filter #3: On Balance Volume has been increasing for the last 30 days.

Filter #4: RSI(5) is below 70.

Filter #5: The price has been decreasing for at least 1 day (I prefer 3 to 4 days) prior to entry.

Filter #6: The stop-loss area (exit) must be within 2% of the entry price. The chart must offer me an easily recognizable and identifiable exit (ie..support area, 10 day MA, 30 day MA, flags and pennant patterns are best). I look for rising bottoms, symetrical rising trends, higher highs and higher lows. This is done with visual observation of the chart in multiple time frames.

From these 6 filters I usually have a list of 50 to 100 stocks in my watch list for the trading day. Takes me about an hour per day.

After the first hour of the trading day (10:30am) I load up my watch list in real time. I cross off any stocks that are red (going down). I cross off any stocks that are up more than 2% from yesterday's close (too high). This usually leaves me with about 15 to 30 names that are tradeable that day. They are in my "sweet spot" with a justificable risk/reward potential.

Filter #7: I check each of the 15 to 30 names on my list by sector and industry. I cross off any names whose sectors and industry are not rising and beating the S&P 500 within multiple time frames (1 week, 1 month, 2 month) Now I might have 10 to 15 names.

I take the 10 to 15 names and note duplication of industries within these names. I compare each stock against the ones in the same industry by relative strength within multiple time frames (1 week, 1 month, 2 months).

I buy the strongest name in that industry. Once I enter the stock I never exit the same day.

Remember, this is only half the trade, the entry. The exits are much more exasperating, difficult, and emotional. If you have an interest in this subject please let me know and I will explain that piece of the trade to you. Otherwise, I hope you might gleen some ideas from my above contribution.

Enjoy Your Trading
Jake
Thailand

May 12, 2008
RSI 5
by: Anonymous

Jake, I would be interested in learning your swing trade system. I would be most appreciative if you can send it, and would be happy to share some observations I have about the RSI 5.
Alvan

May 09, 2008
RSI in Swing vs Trend Following
by: Anonymous

I have always used RSI with a shorter setting of 3-5 periods for timing swing trade entries and exits in much the way you do.

I found using slightly longer periods of 7-9 periods will keep you in a trend following trade longer.

One should decide in advance what type of trade it will be (swing or trend). Swing has a limited return and a target whereas a true trend trade is absolute.

May 03, 2008
Interesting
by: Vijai

Interesting but good. I do use RSI but your strategy is new but sounds logical. I would check it out. But is 30 and 80 are SMA's right..

Click here to add your own comments

Join in and write your own page! It's easy to do. How? Simply click here to return to Tips and Tricks.


Beginners: Learn the Basics

Intermediate: Trading Strategy

Advanced: Swing Trading Tactics