Herm,
I just went back to my favorite book on day trading, Jake Bernstein's The Compleat Day Trader to re-read his section on using RSI. He does refer to it as an "overbought, oversold timing indicator", so I owe you one there. He says to use the same cutoff points as you do with stochastics, i.e. 25% and 75%. When I started daytrading I took his book and held it up next to the sceen to see if I could find the same patterns, and I really struggled with RSI, because I could never get a trade on soon enough using it. I think the advent of internet trading has made some of the old day trader indicators obsolete. I also struggled with stochastics because it gave so darn many false signals that got me in too early before a trend had begun. When I caught on to using it with a trend follower, like MACD, it clicked for me visually. Of course, MACD is just another way of looking at moving averages, so if you are comfortable with MA, you could likely use it instead of MACD.
I think you are right that RSI works fine when you are looking at longer periods. It probably gives less false signals than stochastics. I also am convinced that your use of Bollinger Band penetration is great for predicting a trend reversal. BB didn't work well for me in day trading. Again, it is a moving average based indicator, so it is a trend follower, and gives signals well past the necessary time of entry. For daytraders, I do think the level II information is critical, because it gives you those few seconds you need to follow the MMs, and to stay ahead of the rest of the pack. I never had it, and I think I paid for that. Same time related issue with the use of a T1, or cable modem, versus the usual phone line connection to the internet. |
