RSI is a very valuable indicator. It is no coincidence that it is on par with other classic tools such as MA, MACD, Bollinger Bands, Stochastic, ... when it comes to technology, everyone knows. The RSI is an indicator that even novice traders must be exposed to. Because of its efficiency and variety in usage.

During an uptrend, we Buy and only Buy, and the price will cross the Supply zones and move higher. On the contrary in a downtrend, we Sell and only sell, the price will overcome the Demand zones and move down to the lower level. It's about the trend. How a trend is defined is in my previous article.

So when the market is trending, where do we buy? We will wait for a pullback (prices fall slightly in an uptrend, and prices rise slightly in a downtrend) and the price touches the short-term Supply / Demand zones and places orders there. The Supply / Demand zone will act as resistance, holding prices back.

But the problem of Supply / Demand traders is not knowing how to know what is the real Supply / Demand Zone, which is a breakable price zone.

We will use the RSI as a filter and evaluate the Supply / Demand zones to see if they are tradable or not.

For example, as shown below:

However, there will be some cases where the RSI goes down completely below 40 or goes above 60. In these cases, the probability of the price breaking the supply/demand zone will be higher, or in other words, the probability of you getting a stop loss when place orders there will be higher. That is a consequence, the second consequence when you place an order in the S&D area where the RSI is below 40 and above 60, the price there is more likely to weaken, losing momentum ultimately leading to no increase/decrease. strong. The probability of a reversal is possible.

An example in a downtrend:

And this is an example when the price touches the Supply zone but the RSI goes above 60. The price falls, and cannot sustain the downtrend.

To summarize in a way that combines RSI and the Supply / Demand zone, I'll put it briefly like this, and here's how to use this method too:
  • In the Supply area (supply area), RSI> 60, the Supply area has no high value.
  • In the Demand area (demand zone), RSI <40, the Demand zone has no high value.
  • In the Supply or Demand zone, as long as the RSI is in the 40-60 area, it can be traded
One last little note, the RSI is nonetheless just a tool to assist traders with trading. Therefore, traders should not be too dependent on or dependent on RSI or any other instrument, traders need to understand market movements, price trends, fundamental analysis, and other methods.