The RSI momentum trading consists of using the RSI indicator's peaks and lows to pinpoint best trading signals.
In this instance, one is using the momentum of the RSI oscillator itself to pinpoint bullish or bearish trading signals.
RSI Peaks
The RSI indicator's peak occurs when the RSI breaks below its bullish trend line after a rise. The RSI peak is
different from the RSI overbought. When the RSI peaks, it indicates that the RSI's momentum has also peaked.
When the rate of change of the RSI indicator has peaked, three things are possible:
1/ The price may exhibit a lower high or bearish chart pattern.
2/ The price may continue to rise while the RSI oscillator is pulling back before rising again (in this instance the technical indicator is resetting itself so to speak).
3/ Price may consolidate (slow down without falling significantly) due to the reduction in its rate of change
(momentum).
RSI Bottoms Or Lows
The RSI lows occur when the RSI indicator breaks above its bearish trend line after a decline. The RSI's lows
are different from the RSI oversold. They indicate that the RSI's momentum has bottomed.
One of the following three things often takes place when the RSI exhibits a low.
1/ The price may exhibit a higher low or bullish chart pattern.
2/ The price may continue to decline while the RSI oscillator is bouncing up a bit before another move down again
(in this case the technical indicator is readjusting itself so to speak).
3/ Price may consolidate (slow down without rising) due to the reduction in its rate of change (momentum).
The RSI peaks and lows relate to the momentum of the RSI indicator itself.
The RSI peaks indicate that the indicator is about to decline. However, one will only sell if there is a bearish confirmation. It is is essential that the price confirms the RSI peaks.
Conversely, the RSI lows indicate that the indicator is likely to rise one more time. However, one can only
buy if there is a bullish signal. As always, the price must confirm the lows before one can buy.