Price Targeting Using RSI

12/30/2012 6:00 am EST

Focus: STRATEGIES

Andrew Cardwell

President, Cardwell RSI Edge

Andrew Cardwell explains how he uses the RSI indicator to do price targeting for any market.

Talking to Andrew Cardwell about price targeting in the RSI.  Not many people, Andrew, think of price targeting or price forecasting with an oscillator.  Can you tell me more about that?

It’s something, Rob, that I’ve discussed Discovery when I was doing charts by hand the first 10 years I was in the markets.

Calculated the RSI every day, plotted it on graph paper, and I started to notice when the RSI got more extended to the downside than it was before, but the price was higher, it was basically more oversold at a higher price. So it’s like a springboard.

Then, I could take that target, the difference, and add it to the high and suggest new highs.  I did it with gold when gold was $750, I was talking to people about $1200, $1400, $1500; they thought I was crazy.

As soon as this video’s up, I’m going to replay that thing you just said, because I’ve never heard—I’ve heard people say everything there is to say about indicators—and I’ve never heard that before.  Do you teach people to do this?

Well, I teach it in my courses. I teach a basic class and an advanced class.  In fact, I had one basic class that I did, that did not have one person from the continental United States.  I had people flying in from other places…

Right, worldwide.

Brokerage firms… and I still teach it, but I don’t teach it live.  It’s still in the audios and manuals, CDs.

So it’s not just price—it’s not just overbought and oversold; there’s price forecasting, but it’s not just that either.  It’s trend change, trend analysis, as well.

You can use the range rules and then put moving averages on the RSI and on close, and I watch the shorter-term moving average to cross the longer term on both the closing price and the RSI value, and then when they’re in up, it gives me guidelines for trend, the range rules.  If I see a bearish diversion, it’s just an overextension…

Oh, I love that.

That comes in an uptrend.  It sells off into what I call these positive reversals.  We’ve got an article on MoneyShow.com. On the range rules.  When I started, as I said, the first 10 years, I did not have a computer.  I was plotting these everyday by hand, so I looked at how that one point—where that was in relation to every other point on the chart.

In your daily routine, are you—do you start with the longer term?

Daily—daily and weekly.  I have clients that use what they’ve learned in my courses and what I’ve taught to look at weekly charts for mutual funds. But I’m primarily daily.  Have an idea—you always want to know what the longer-term trend is underlying what you’re doing. If your longer-term trend is down and you’re a buyer on your hourly charts…

You’ve got to be careful.

You’ve got to be quick. But, if your trend is up on your daily charts, your range rules are up, the moving averages are.  You buy dips.  This is how you allow the market to show you what it wants to do.  So many people fight the market.

I have what I call golf course trades.  Put it on—I’m not going to be sitting in front of the computer all day.  I put it on, put my stop in, figure out what my targets are, and most of them are three-and-a-half or four-to-one reward to risk.

You have to look at probability.  So many people say what’s the trade?  It’s three-to-one.  What’s the probability? You could flip a coin.

You really don’t know anything unless you know both of those numbers.

Your risk, reward, and your probability is what separates traders from investors, and my definition is everybody starts as a trader.  You buy, you sell, you’re going to take your losses.  The ones that put that trade on, hold onto it when it goes against them, don’t use a stop, goes a little bit more, and maybe dollar cost average, which everybody says oh yeah, it’s low—it’s a better deal now, but they become investors.

Right.  You’re in it for the long term now, baby.

You’re a major investor in the company.

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