5 Basic Pullback Trading Strategies With the RSI

Revolutionary RSI Strategy for Precision Pullback Trading

Basic RSI – Pullback Trading may just be one of the most reliable technical strategies, but it gets complex and even better. Discover more in this article today.

Table of Contents

1. Introduction:

Pullback trading is never for the faint-hearted. Analysts desperately hold on to the optimism of a possible reversal, believing an ongoing move is only ‘fake’ & temporary. Fortunately, the Relative Strength Index (RSI) significantly clears niggling doubts when mastered.

Continue reading this article to understand RSI pullbacks and obtain a top-tier technical system to streamline the process.

2. Basic Pullback Trading Strategy With the RSI

The concept of pullbacks has garnered significant acceptance among technical analysts, sparking various inventive strategies.

For example, many traders employ trendlines of support/resistance during such retracements; some prefer the Fibonacci levels, and others seek price gravitation and response off chief breakout points.

However, one of the most reliable, lesser-known methods is the application of the Relative Strength Index (RSI).

The indicator’s overbought and oversold levels may be popular on other grounds, but pullback traders can still get the most from them.

TradingView chart with the RSI Momentum Indicator
TradingView chart with the RSI Momentum Indicator

Below is the most basic RSI-pullback strategy commonly shared among veterans:

2.1 Trend Identification

Like most strategies, the goal of pullback trading remains to ride the underlying trend earliest. Hence, interested folks must define a solid technique for determining the presence of one without errors.

Traders use other indicators like the Moving Average and MACD for this. Trendlines or price patterns also work.

Any choice one makes should be highly precisive, being the foundation of pullback trading.

2.2 Patience for Overbought or Oversold Scenarios

After identifying the trend, this strategy demands patience for the RSI to move into the overbought or oversold zones (above 70 or below 30).

For instance, if conditions are bearish, the RSI should be above 70 before considering the next step. Similarly, if bullish, it must move below 30.

Overbought and oversold levels on the RSI
Overbought and oversold levels on the RSI

2.3 Anticipate the Pullback:

As expected, traders must seek pullbacks in this strategy, but only after confirming the overbought/oversold condition.

It seems the easiest step thus far. However, slight distractions, keenness, or misconception can jeopardize the plan.

Traders should correctly discern the current retracement, which may target a significant price level from the past.

2.4 Take the Entry Signal

Confirming the pullback allows traders to take the next entry signal based on the underlying trend.

Again, there is no hard-and-fast rule about what such signals should be. It could range from candlestick patterns to trendline support or indicator prompts.

What matters most is one’s risk management guide.

A stop-loss order must accompany every trade, be it trailing or fixed. One must calculate and use the correct position size based on the risk tolerance. Deviation from any reward-to-risk ratio is prohibited.

2.5 Set Profit Targets

Finally, pullback traders forecast the most favorable levels to exit potentially profitable trades. The target could be from old support/resistance zones, swing highs/lows, or Fibonacci extension points.

With a solid reward-to-risk ratio, one may not need any reference point in the chart or from indicators for exiting pullback trades.

Alternatively, traders allow their profits to run while being trailed by a moving stop-loss order.

3. Leveling Up Pullback Trading With The Advanced RSI for TradingView

As discussed, the pullback trading strategy shared earlier is rudimentary. Top contemporary investors tweak it significantly for preferable results.

Fortunately, newbies can replicate their success effortlessly with a groundbreaking indicator – the Advanced RSI (A-RSI) for TradingView.

Admittedly, its fundamental operation still stems from the classical Relative Strength Index, but the algorithmic refinements take technical trading to the next level. You’ll never miss a pullback setup with this tool.

The Advanced RSI (A-RSI) in action on TradingView
The Advanced RSI (A-RSI) in action on TradingView

In a nutshell, here are some incredible benefits of its application:

– Rapid awareness of the best pullback entry point in real-time

– Freedom to explore multiple trading strategies, from reversals to range-bound and trend trading

– Early knowledge of price-indicator divergences

– Ability to trade on various timeframes in several markets

Sounds unreal? Click here to confirm these and many more advantages for monstrous equity growth.

4. Summary:

Numerous pro analysts have proven the Relative Strength Index a practical tool for pullback trading. It involves:

– Identifying the underlying trend

– Waiting for overbought/oversold conditions

– Anticipating a pullback

– Entering trades with defined targets

Nevertheless, most consider this strategy basic, preferring more confluences to improve success probability.

Traders can achieve the latter stress-free by employing the Advanced RSI (A-RSI) – a TradingView indicator for pinpoint pullback trading signals.

Please share this article with friends, colleagues, and acquaintances interested in retail trading. Also, leave feedback in the Comment Section below for engaging discussions.

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