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Profit Taking With The Relative Strength Index

One of the problems all traders have is knowing when to take profits. Using the RSI is an easy way of knowing when a stock has peaked. If combined with additional exit methods such as predetermined dollar profit exit or a trailing stop you get the advantage of getting out of a stock when the up or down momentum falters.

When using the RSI for profits, use a 3 to 5 day moving average. Profits are taken when the RSI reaches 75 or higher (if long) or 25 or lower (if short) and then reverses by 10 or more points. If the RSI does not pull back sufficiently, it is possible that the stock is trending or ready to continue for further gains. Various different stops should be used to protect your gains

For example: If the RSI peaks at 75 and the pulls back to 65, you close the position.

See our discussion concerning RSI.














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