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Hi Guys,
Some of you have been debating whether to take the RSI of stochastics or
the stochastics of RSI. In my more technical days, I found the most
useful way to combine these two indicators is to take the SLOW
stochastic reading OF the 14 day RSI. That means the slow stochastics
is smoothing the raw RSI. Then you can use turns from overbought and
oversold and/or crossovers to trade. The only problem is that I don't
think you can trade systematically with this indicator and produce a
profit. That is why I don't have it posted on my charts. Remember,
only the SLOW stochastics will give you the smoothing you need.
Metastock 5,3 stochastics or fast stochastics won't work for this. You
will then have a first derivative of RSI. Other ways to smooth RSI
include a moving average or even an MACD histogram of RSI. But don't
bother to go through the trouble. These indicators look sharp but they
won't put money in you pockets. Better is to use straight stochastics
and look for signals that occur during divergences from price along with
confirmation from another indicator plotted from price such as MACD
histogram, or another indicator plotted with price and time like
trendline violations.
Best wishes,
James
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