1. Explanation of the Strategy

The RSI (Relative Strength Index) overbought/oversold strategy is intended to recognise when a stock is possibly overbought or oversold, flagging a potential inversion or rectification. The RSI is a momentum oscillator that actions the speed and change of Price Movements on a size of 0 to 100.

• Overbought: Assuming that the RSI moves over 70, it demonstrates that the stock may be overbought, importance its cost has risen excessively far excessively fast, and a remedy or pullback could be impending.
• Oversold: In the event that the RSI falls under 30, it flags that the stock is oversold, importance its cost might have dropped excessively, excessively quick, and a bounce back could happen.

This procedure is valuable for both swing trading (holding for 1-15 days) and intraday trading, planning to gain by transient inversions.

2. Science Behind the Strategy

The RSI works since it estimates the speed and size of late cost changes, showing whether a stock is overbought or oversold. The idea driving the RSI is that stocks can keep moving in one bearing for such a long time before they become overstretched.

• Overbought stocks will generally have extended Price Movements, frequently because of exorbitant purchasing pressure. These stocks frequently experience a pullback since purchasers begin taking Profits, diminishing interest, and prompting a cost rectification.
• Oversold stocks, hen again, frequently experience weighty selling pressure, however eventually, venders evaporate, and purchasers move toward, prompting a cost bounce back.

3. Stock Selection Process (Detailed and Easy to Understand)

Choosing the right stock for the RSI Overbought/Oversold methodology is basic for progress. We should separate the cycle bit by bit to make it simple and viable.

Step 1: Screen for Stocks with Strong Trends

For the RSI system to work, you want stocks that are areas of strength for in (either upturn or downtrend). Moving stocks will generally display overbought/oversold conditions all the more plainly.

• Criteria: Search for stocks that have moved somewhere around 5-10% in one or the other course throughout recent weeks or days.

Step 2: Avoid Stocks with Low Liquidity

Stocks with low liquidity will generally have unpredictable Price Movements, which can prompt untrustworthy RSI readings.

• Minimum Daily Volume: Select stocks with an everyday typical trading volume of 500,000 offers or higher.

Step 3: Filter for Mid-Price Range Stocks

Stocks that are too modest or costly can be more unstable or harder to exchange with tight gamble the executives.

• Price Range: Spotlight on stocks evaluated between ₹100 to ₹2000 to guarantee they have adequate cost development without extreme Volatility.

Step 4: Choose Stocks with Recent Overbought or Oversold Conditions

The way to progress with this methodology is to choose stocks that are either overbought (RSI > 70) or oversold (RSI < 30) in the beyond couple of days.

• How to Filter: Utilise a specialized screener to examine for stocks where the RSI has as of late crossed over 70 (overbought) or under 30 (oversold).

Step 5: Sector Consideration

A few areas will generally answer better to momentum based markers like RSI. For instance, innovation and customer optional areas frequently display clear overbought and oversold conditions.

• Tip: Stick to areas that show steady moving way of behaving and keep away from profoundly unstable areas like biotech or theoretical little cap stocks.

Step 6: Avoid Stocks Near Major News Events

Stocks close to huge occasions like income reports or administrative choices might show outrageous RSI readings, yet these can be false signs because of impermanent unpredictability.

• How to Avoid: Check in the event that any significant news or profit reports are forthcoming inside the following 1 fourteen days. Keep away from stocks that have significant occasions not too far off.

4. Entry Point, Trigger Point, Exit Point, and Stop Loss

• Entry Point:
  • For Overbought Stocks: When the RSI crosses under 70 from a higher place, it demonstrates a potential cost inversion. This is your sell signal.
  • For Oversold Stocks: When the RSI crosses over 30 from beneath, it demonstrates a possible bounce back. This is your purchase signal.
• Trigger Point: Utilise the intersection of the 70 or 30 levels as your trigger to trade.
• Exit Point:
  • For a short trade (overbought): Leave when the RSI falls under 50 or the stock hits a significant support Level.
  • For a long trade (oversold): Leave when the RSI transcends 50 or when the stock methodologies a solid opposition level.
• Stop Loss:
  • For short trades: Spot your Stop Loss over a new opposition level or around 3-5% over the passage point.
  • For long trades: Spot your Stop Loss under a new support Level or around 3-5% beneath the section point

5. Average Win Ratio

• Win Ratio: The RSI Overbought/Oversold methodology regularly has a success pace of 55-65% relying upon how well you execute the stock determination and Risk Management.
• Reward-to-Risk: Go for the gold to-gamble with proportion of somewhere around 2:1 to guarantee your Profits offset your Losss.

6. When NOT to Trade

• Choppy or Sideways Markets: Abstain from trading when the stock is in a sideways or combining stage. The RSI can remain in overbought or oversold zones for expanded periods without producing clear signals.
• Earnings and Major News Events: ry not to exchange around income reports, government strategy changes, or other significant news occasions that can slant RSI readings because of brief cost spikes.

7. Types of Events to Watch Out For

• Earnings Reports: These can cause abrupt cost holes, making RSI levels inconsistent.
• Economic News: Focus on more extensive market occasions, for example, loan cost declarations or work information, which can move the whole market.
• Sector-Specific News: Administrative changes or extensive news influencing explicit areas can misshape RSI signals.

8. Example: Step-by-Step Application of the Strategy

We should stroll through an irregular illustration of how to utilise the RSI Overbought/Oversold system from stock determination to execution.

Step 1: Screening the Stock

You use LabhTark’s screener and set the following criteria:

• RSI Level: Under 30 (oversold) or over 70 (overbought).
• Volume: Everyday trading volume over 500,000 offers.
• Price Range: ₹100 to ₹2000.

You find Stock XYZ has an RSI of 28, meaning it’s currently oversold.

Step 2: Investigate the Stock's Pattern

You pull up the day to day diagram for Stock XYZ. Throughout recent weeks, the stock has been declining, however there are signs that it is approaching a support Level. This affirms that the oversold RSI perusing might demonstrate a likely inversion.

Step 3: Check for Upcoming Events

You check the income schedule and find that Stock XYZ has no forthcoming profit report or significant news inside the following fourteen days. It's protected to continue.

Step 4: Entry Point

The RSI crosses over 30 subsequent to contacting 28. This is your purchase signal. You enter a long position, certain that the stock has reached oversold levels and an inversion is logical.

Step 5: Stop Loss Placement

You place a Stop Loss 3% underneath your entrance cost, just beneath the new support Level to Protect against additional drawback.

Step 6: Exit Point

In the wake of holding the stock for 5 days, the RSI transcends 50, demonstrating the stock has Recoverd from its oversold condition. Furthermore, the stock methodologies an resistance Level on the graph. You leave the exchange, securing in your Profits.

Via cautiously following this interaction and being focused about stock determination, section, and leave focuses, you can upgrade your odds of coming out on top with the RSI overbought/oversold strategy for both swing and intraday trading.