Ask Colin

What time period should I use for Relative Strength Index (RSI)?

RSI is a momentum oscillator. It is used to trade sideways markets.

 

I also believe it can be used to find entries to an upward trend, but my approach on this point may not be accepted by most people. You will have to make you own mind up on that.

 

The period you choose for RSI is related to your time frame. If you are a speculator, you would use daily data. If you were an investor, you would use weekly data. The number of days or weeks will also be driven by your speculation or investment plan. You need first to decide what time frame you want to exploit and then test different numbers of days or weeks, to see what seems to give the best results for your plan. I don’t use RSI, except to teach and write educational articles. However, I find 5 or 7 days or weeks seems to be a good starting point. From there you need to adjust it by eye to match the character of the market or stock you are dealing with.

 

What you need to realise is that technical analysis is like a big toolbox. You don’t use all the tools for every job. You use the most appropriate tool for the job at hand. That will also depend on your whole psychological make-up. If you struggle because you don’t understand something, then keep working on it. But if you understand it and are still uncomfortable, it is probably suggesting that the tool does not suit your temperament and you should look elsewhere.

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