[…] When traders use the RSI indicator in their trading, they usually apply it to price to find oversold and overbought conditions. When investors refer to overbought and oversold securities, what they mean, is that the price has moved excessively in one direction, and most likely is soon to revert to its mean. This type of trading often is referred to as Mean Reversion. […]
[…] stop loss is critical for risk management and position sizing, All trades, except for a few mean reversion type trades, should have a stop loss implemented. Most traders use a percentage or dollar-based […]
[…] to enter the S&P 500 if the RSI has reached overbought levels, since we know it’s a mean reverting […]
[…] Another con of the death crosse is that it sometimes produces false signals. However, this is not unique to death crosses, but is true for any investment or trading strategy. The best way of mitigating false signals is to add additional filters such as the ADX, MACD or RSI. […]
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