Guide to Day Trading Strategies

Chart with Relative Strength Index.

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Image of standard RSI settings.
Relative Strength Index (RSI)
I use the Relative Strength Index (RSI) exclusively for reversal trades. Like a candle fully outside 
the Bollinger Bands, when RSI is below 20 or above 80, it indicates an intraday extreme. Many of 
best reversal trades will have an RSI below 5 or above 95. RSI is measured on a scale of 0-100, and 
it represents the strength of the stock. A reading of 90 or 95, indicates an extremely overbought 
condition while 5-10, represents an oversold condition. Many traders jump to the conclusion that 
when RSI is at extremes, the trend cannot possibly get any more extended and could change 

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directions. It is important to note that since RSI can remain at extremes for a long period of time, 
it is not a reliable buy or sell indicator without additional con
À
rmation. Stocks that are trending 
slowly, up or down, generally don’t always show RSI extremes. The RSI extremes are more often 
combined with parabolic moves or long trends that 
À
nally peak with one last surge. Instead of 
keeping RSI on my charts, I have created a 
À
lter in my stock scanners to only show me reversal 
stock ideas when the RSI is below 20 or above 80.
Image of Volume Bars.
Volume Bars
The 
À
nal technical indicator that I use on a daily basis are simple volume bars. These bars tell us 
how many shares of volume were traded during a candlestick period. Volume is a critical piece 
of information for my trading strategies. It would be very dif
À
cult for me to trade without the 
volume bars. I need to have a sense of the increasing and decreasing volume as momentum 
builds and then fades. When I see decreasing volume during a trend, it can be an indicator that 
the trend is about to change directions. Additionally, during periods of consolidation, seeing an 
increase in volume can suggest a potential break back into a trend.

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CHAPTER 6