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Hey guys, Lawton here with Verified
Investing back with another
trading playbook. Happy Saturday, happy
weekend. I hope you guys are doing well.
Um before I get any further guys, I just
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And one more thing guys, before you go
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and Gareth Soloway is now live, a brand
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Scan the QR code down below right here
to learn more. But with that being said,
today, what are we talking about? Well,
we've done a lot of technical analysis,
different patterns, you know, different
pivots, psychological levels,
and fibs. But today, we're going to be
talking about something very
interesting. Here is the play.
And in today's video, we're going to be
talking about RSI.
Now, RSI is something that you can turn
on in your indicator. It's an indicator,
the first indicator that I've ever
covered uh on here that's automatic,
called the relative strength index. And
what does it generally
do?
What is RSI?
When you turn it on, it looks like,
okay, this just looks the same as uh
this chart. Nothing's really different.
What does it even mean?
Well, and what and what are these
ranges? Well, RSI stands for
the relative Oh, I'm in caps again.
strength
index.
It is called the relative strength
index.
And
um
basically it tells you how strong a
stock is comparatively. But, there's a
couple key uh things to understand and
it's not as simple as just
well, if it's higher, that means it's
stronger, right? And if it's lower, it's
weaker. Well, not quite.
Um
you can use these numbers and you can
see this little bar that's shaded on the
bottom of my screen, a 70 for the top
and 30 for the bottom. And what does
that mean?
General
really
RSI
above 70
overbought
Let me go ahead and adjust this.
RSI RSI above 70 means it's overbought.
RSI
below 30
equals
oversold.
>> [snorts]
>> This is the general rule of thumb,
right? Um
but just because a stock is overbought
or oversold doesn't necessarily mean
that it needs to pull back because a
stock can remain overbought for a while.
And looking at Nvidia, look, it was
overbought this entire time.
And you're talking about a time frame of
between February 24th, like for over for
over a week was straight overbought.
Right. As far as oversold getting down
here at the low here, yeah, it was
oversold in April and look at that
amazing bounce. So, in general, you can
kind of look at it as overbought and
oversold, but I wasn't wouldn't use that
as my singular only indicator just for
entering a trade.
Right?
Again, taking a look down here, RSI
below 30 right here, and then you
ultimately got the
bounce. RSI above up above 70 and you
ultimately did get a pullback. But, you
want to use other factors with that.
Okay?
But, something really really important
that I want you to understand is RSI
divergence.
Now, what is RSI divergence?
Let me go ahead and write that down.
RSI divergence
is when
price the
pattern of the stock
pattern
RSI do not match up.
So, RSI divergence is when the pattern
of the stock and the RSI do not match
up.
Right? Now, what does that mean?
Well, look for instance here.
Right? Look for instance here on Nvidia.
You see Nvidia, what does it look like?
Well, it's creating shoulder head
shoulder pattern here.
And you have this kind of nice beautiful
kind of uptrend.
Creating the head and shoulders pattern
on the RSI.
But,
if we go down here and look at the RSI
and where it kind of coincides, okay,
left shoulder, wow, that's
great. That looks perfect.
Looks fine.
Comes down, yep, also comes down and
goes higher. It goes higher, but it the
RSI is pretty much just where it was on
the left shoulder, slightly higher,
despite Nvidia making
a brand new high.
And as Nvidia comes
back up, look at this. This high was
taller than the first high,
but shorter than the second uh head, I
guess, for the top of the shoulder, and
look where RSI is.
So, you can see the divergence there,
that while the price continues to move
up in an uptrend,
RSI is actually coming down
in a downtrend.
And what does that mean?
Well,
generally, when they diverge like this,
this is called bearish RSI
RSI divergence.
So, again, let me see if I can draw this
and make sure make uh
help you guys understand this a little
more clearly, cuz I'm not sure if I did
the best job of explaining that. I'll go
ahead and draw it on the chart. So, if
the stock is going like this,
and the RSI is going down like this,
creating a lower highs, despite the
stock is going higher highs, this is
bearish
RSI divergence.
Now,
for bullish RSI divergence, it would be
the opposite.
Right?
It would be the opposite. Let's say a
stock was moving like this,
but the RSI was moving kind of like
this.
Well, this is actually bullish
RSI
divergence.
And you can use RSI in pretty much any
time frame. In fact, we use it for for
trading, swing trading, um
for for all sorts of trading. I use it
during earnings as well sometimes cuz
cuz moves can go crazy.
But,
RSI exists on any single
um time frame you want. The 10-minute,
the 1-minute, right? You can see.
And the most important thing is, guys,
to remember that just because RSI is
over 70 or under 30 doesn't mean it has
to go up or has to go down.
Cuz a stock can continue and stay
overbought or oversold for a significant
portion of time.
With that being said, that's all I have
for you guys today. Again, my name is
Lawton Ho here with Verified Investing.
Please comment, like, subscribe. Let me
know what you want to see next. And
don't forget, guys, in tomorrow's
episode, I'm going to give you three
actionable trade setups using RSI, um
as the main indicator. And don't forget
to check out Gareth Soloway's Million
Dollar Investor now live. Hope you guys
have a great rest of your day, weekend,
and I'll see you guys bright and early
tomorrow.
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>> That's the trading playbook. Today's
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