KTS #9 RE-POST: Relative Strength Index
Originally published on Blossom on March 29th, 2024
Please find retrospective commentary at the end.
Before I lose the self-proclaimed Fundamental Investors who are long term investors (of which is my core foundation as well - hey, I’m one of you!), there are some basic and easy Technical tools that I plan to work in to this Knowledge Transfer Series that we need to add to our toolkit to improve either short, mid, or long term returns.
So for those in that camp, try to stick it out! RSI is the Relative Strength Index. For a trader, knowing a stock/ETF’s current RSI is a must have piece of information before sending any buy/sell order. RSI is as common as a nail to a homebuilder. So let’s acknowledge the Technicians can teach us something and that we aren’t so arrogant to think we can’t learn something from the Technicians.
It moves constantly for every security within a range from 0 to 100. When the RSI is above 70, a security is generally considered overbought - and when a security is below 30, it is generally accepted that the security is oversold. Go ahead and pull up the RSI chart for your favorite 5 securities. Doesn’t matter which ones. Look! They all look the same! For geeks, they look like sine waves, oscillating up and down constantly entering Overbought, reversing, going down to Oversold, reversing, going up to Overbought, reversing, going down to Oversold, reversing, going up to Overbought, on and on.....forever.... OK, you get it. Now, if you compare this RSI chart to the actual stock/ETF price chart, you’ll see a fairly PREDICTABLE stock price direction that is well correlated to the RSI. In other words, the RSI tells us if the stock price is going up or down in the coming days or week ahead. WOW! Wait a second, isn’t that why we are here???? To make a “bet” on a stock price direction! Take the TIME to prove it to yourself with this
exercise:
Go look at the comparisons of the RSI charts to the stock/ETF price charts for each of your current holdings. FIND THE KEY INFLECTION POINTS - THERE ARE TWO PRIMARY POINTS: (1) The point where your stock’s RSI just crosses above 30 and leaves Oversold territory, and (2) The point where your stock’s RSI just crosses below 70 and leaves Overbought territory. In (1) above, this is an OPTIMAL point to buy. And (2) above is an OPTIMAL point to sell. So whether you are a trader or a long-term investor, this is an easy tool to generally save an extra 1-3 % on your entry price by TIMING THE MARKET. Again, this works whether you plan to harvest those returns as a trader or a mid to long term investor Now this post is a baby step into RSI used in the most basic way. But this is a key one to reading what the ticker tape tells you - not what you tell the market.
This basic application of this most common trader tool is just one MARKET TIMING TOOL that we have now. After we use it, analyze it, and prove to ourselves that it works as it should (described above), we will start developing other tools that allow us to successfully market TIME markets.
Watch out, here come the Fundamentalists in full force when they read this one! They will tell you that you can’t TIME markets. They’ll point to the ultra rich that said so, they’ll point to their magazine articles, and 101 Investing for Dummies books. They’ll spew the word of Certified Financial Planner....to keep a lid on your returns AND your dependency on their approach to the markets and their soldiers. Ignore them.
You can do this - just take the TIME and start really small to watch it work. You MUST prove it to yourself first before we advance its application to TIME markets at a more macro level.
Ask questions and share thoughts!
Retrospective commentary - September 22th 2026
To this day, modified RSI is still a tool Beskar Capital uses frequently. Yet I still see many members and general investors misuse it.
Reread this excerpt twice:
"THERE ARE TWO PRIMARY POINTS: (1) The point where your stock's RSI just crosses above 30 and leaves Oversold territory, and (2) The point where your stock's RSI just crosses below 70 and leaves Overbought territory. In (1) above, this is an OPTIMAL point to buy. And (2)
above is an OPTIMAL point to sell."
Too often, I hear investors say they sold because the stock had just entered overbought territory, or bought because it had just entered oversold territory. If you've read the excerpt above twice, you know that the point I consider optimal is when the stock LEAVES overbought or oversold territory. So this KTS repost and retrospective commentary is as much for first-TIME readers as it is for seasoned KTS followers.
Even though this is a trader’s tool, Beskar Capital uses it to identify optimal points for accumulation. Never forget that we are fundamentally long term investors. Yet again, we are using tools in an UNconventional Way. 😉
Now make sure you're ready for Wednesday's repost of KTS #10, an absolutely foundational
KTS.
I always give you my best. 🏆
This is the Way! 🏄🌊
