How I use the RSI (2) & Stochastic to trade stocks

NASDAQ:MSFT   Microsoft Corp.
This is a quick description as how I use STOCH and the RSI2 to help me find key pullbacks in a trending market.

Throughout trending markets we expect to see healthy pull backs. This happens as people rotate out of certain stocks/sectors, price drops and this gives us a great opportunity to enter the stock at a discounted price.

If we take $MSFT as an example we can see price hit a high of $97 on 2nd March - RSI was above 97 and Stoch was reaching 90. I wouldn't always take this as a signal to sell. In a strong bull market these readings will be common.

Several days later we see price fall to $87, just over a 10% discount. It's a fire sale and we need to get in on this bargain! The RSI was below 2 and Stoch below 10. Now we wouldn't jump straight in. We would check the news and financials to establish any reason for the drop . If there is nothing obvious we need to look to get in and buy this discounted giant.

If you had bought in at $87 your stocks would be worth over $108 now! Not bad is it?

Hindsight is a wonderful thing but give it a go, back test the strategy and see if it works for you.

I'll be adding more over the coming weeks so make sure you give me a follow :D


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