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*Guest Post By Alex G
Hopefully everyone is having a great trading week. I personally took it easy most of the week due to work. But that doesn’t mean I’m not following the markets. I will usually come in and out of the room anyway. Because of work, I’ve developed a great deal of patience and discipline. How do you develop this as a trader?
First, you learn what not to do. Remember when you were small and your mother warned you to not touch that hot pot? Being naive, you probably touched it a couple of times before you learned your lesson. Trading is similar, except you do so by losing money and possibly blowing up a couple of accounts along the way. Hopefully when you’re learning to trade, you do so with tiny position sizes.
You also have to be a bit more picky about the trades you take and as such focus on what I call the Textbook High RSI Stocks (see: RSI as an Overbought/ Oversold Indicator). Think of it as playing only “premium” hands in poker. You will only run into these occasionally, in trading you usually get 1 or 2 a day. So when I miss them due to work, i’m not a happy person.
Textbook High RSI Stocks
With that said, I’ve been focusing on textbook high RSI stocks. We talk about high RSI stocks extensively on this blog and have shown several examples on our Youtube Channel. But what defines Textbook? I can’t spill the beans in this one article but we go over how to short these in our day trading bootcamp “Champ Camp”.
Basically, and the RSI is not the only element, once an RSI hits overbought (80+) you can take advantage of the quick pullback that is bound to happen due to profit taking. But, in my book, they have to be obvious and have the elements we discuss in Champ Camp. Members in our trade room will often trade the high RSI stocks simply because they have a high RSI. From observation and experience, I can tell you that you will find yourself “fighting” these kinds of stocks.
You want to trade the high RSI stocks with all the elements. By doing so, you really only focus on the best set-ups. This week 2 come to the top of my head. One I traded, the other I missed due to work. Keep in mind, these are all day trades.Focus on the 5 minute chart on the left. Til this day, I don’t know what caused the moves.
Parametric Technology Corp. (PTC)
This one I nailed out of the gate as it had a gap and run. I shorted once it hit a 94 RSI and around a round number. Right below $47. I covered at $45.90 for almost a $1 pullback in less than 15 minutes (right around VWAP). But as you can see, it gave it all up until it bounced off previous resistance.
This one is from Tuesday and it is the one I missed. We had a slow morning and figured nothing was going to pop the rest of the day. To my surprise, the whole room was excited as they had not seen anything. This is textbook high RSI stock. You have a high RSI, a quick 10% move and a couple of huge green candles.