“I am a student of how the market moves and understanding it and being a part of it, it’s a labor of love. It’s a passion. It’s not a desire for money – that’s just the benefit.” – Jon Morgan
So that’s what it is. It’s the one right here, Constance Brown Composite Index (CBCI) and RSI average.
So how we can figure out where to go when it’s in a strong move down is we have to look at our oscillators. Where is price pulling back to on the oscillator, and what levels in the RSI is price coming back to.
Whenever price seems to go up and touch around the 30 to 40 area, that turns into the new overbought and it gets sold off. It comes back up to touch it again, and gets sold off. It moves back up a little bit over and gets sold off again.
So oscillators, they do not fluctuate just between 70 and 30. 70 and 30 on an RSI are just the default settings. Overbought conditions and oversold conditions will change especially when you’re in a trend. You will find supportive RSI levels when prices are moving up. This is something you don’t read a lot about, and nobody will ever tell you, and really bad educators and people selling you trash will say “just short whenever you get into overbought and buy whenever you get into oversold”, and you will always lose money. It just does not work like that.
When you’re in a clear uptrend, and you can tell just by looking at it. You don’t need a lot of past price action to determine if you’re in an uptrend, you should just be able to see it. But when you start seeing and placing your own support and resistance lines in the RSI, you can see where you can re-enter on a trend. Certainly, when you get into the elevated overbought areas, you can take profits but don’t short, just take profit. And when it returns back to a supportive area and your oscillator, you can buy and ride it back up.
Typically, in an uptrend the RSI is going to find a supportive value between 50 and 60. And when it’s in a downtrend, you’re going to find resistance on anywhere between 40 and 30.
Additionally, another way that you could look at it, is by ignoring the RSI and only using the Composite Index. That makes it a little bit difficult. You may miss more moves, but sometimes it’s a little easier for beginner traders.
But again, the best option is to just use the RSI and in a trend. Don’t get into tunnel vision on your timeframe because when you zoom in, you want to look at where these levels are on longer time frames (8-Hour, Daily, Weekly, etc.)
On the 8-Hour, we’re still moving down quite a bit. When we’re looking at it on the Daily (D1), it looks like a nice healthy move and that we may keep moving down. The Weekly (W1) however, on the Euro, we have divergence.
We have very clear divergence in the RSI, but not so clear on the Composite Index. Yesterday, I talked about how this candlestick is a reversal candlestick, not just in its formation but because it’s a pivot candlestick now, because we have the in-between candlestick of these two, when we have lower highs and lower lows compared to the centre and middle candlestick, it means that is a pivot area and price will want to move down. These two peaks are very bearish, so on a weekly time frame, it’s not a healthy chart for continued upwards movement.
Conclusion: Will we get pull backs? Yeah. Will they last very long? No. We should look forward to pullbacks because if you did not get in short early, then you will you’ll have another opportunity to later on.
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