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.