RSI Reliability

Instructor's Comment:

Good observation...

Keep in mind that nothing in trading will be an absolute. Simply because the RSI closes below 70, does not mean it will not go back above 70 without making the move down to the 30 level.

As traders we simply react to the signals that the charts and indicators provide and exercise good money management principles. 

On this particular chart, if the trader went short when the RSI closed below 70 and placed the appropriate stop (see chart below), they would still be in the trade. Ultimately, this trade may go on to be stopped out or go on to be profitable. By using a higher probability entry on each and every trade however, and practicing good money management skills, we put the likelihood of success over time in our favor.