Simple Strategies To Boost Your Profits - Trading With RSI Power Zones - Hima Reddy

Hey
there!
This e‐book builds upon the concept I’ve introduced on how you’ve likely been using
momentum all wrong.
Don’t worry, it’s not your fault! The traditional approach to indicators, both oscillators and
indexes, has its benefits. But the maximum power behind one of these specific oscillators is
lost until you start looking at it the way I do.
I’m excited for you to start looking at momentum in a whole new way, that will truly help
boost your profits!
~Hima

Let’s look at the Relative Strength Index, or RSI. The traditional approach shows
overbought at 70 or above, and oversold at 30 or below…
E‐mini S&P 500 Futures / Continuous Contract / Daily / 2 years
When it comes to using only

standard OB/OS…
I’m calling B.S.!!!
But when it comes to using only the standard OB/OS, I’m calling B.S.!! No offense to Mr.
Welles Wilder (who invested the RSI), or to anybody who's ever used it this way. I just
know there's so much more to it and I’m going to show you how that works.
Remember “the Bears”
© 2017 Celer Wealth, LLC. All Rights Reserved. Page 2 of 33

The Green Bay Packers vs. the Chicago Bears, classic football rivals! The Bears must push
into Packer territory on the field and make it to the End Zone (circled in orange) to score.
Now, the market “bears”…

RSI Bear Resistance Power Zone: 55 to 65
RSI Bear Support Power Zone: 20 to 30
Jumping to financial markets, the market bears can push the market to much deeper
oversold levels than in normal market conditions, or in sideways market conditions. And,
the actual resistance that they come up to is lower than the traditional 70 level.
Down trending or bear markets generally find resistance when the RSI is in the Power
Resistance Zone from 55 to 65. And they generally find support when the RSI is in the
Power Support Zone from 20 to 30.

And the market bulls…

RSI Bull Resistance Power Zone: 80 to 90
RSI Bull Support Power Zone: 40 to 50
On the flipside, the market bulls generally extend into the Power Resistance Zone from 80
to 90. And, in a bull market the RSI doesn’t need to deteriorate all the way down to 30 to
see a buy signal. Instead, bull markets generally stabilize ahead of the Power Support Zone
from 40 to 50.
It’s VERY IMPORTANT to remember that the RSI is still staying at the default setting
of 14 periods. Whether it’s 14 days, 14 hours, or 14 weeks, these zones only work if the
period setting is 14. So, I say set it and forget it!

@ES /60‐minute chart / May 12th – May 25th
RSI Bear Support Power Zone: 20 to 30
Now you’ll see the adaptation I made to my RSI Indicator to plot the Power Zones. The two
lower red lines mark the Bear Support Power Zone from 20 to 30.
RSI Bull Resistance Power Zone: 80 to 90
The lines alternate (red for Bear Zones, green for Bull Zones), ending with green lines
marking the Bull Resistance Power Zone from 80 to 90. The RSI will still trade between 0
and 100 (original oscillator parameters) but these green and red lines make it easier to

monitor movement from one Zone to another. And, the value of each horizontal line is
marked on the right sub chart axis of each graph.
Many of the examples will look at charts of the ES (E‐mini S&P 500 Futures). It’s my baby! I
learned about technical analysis and trading by studying that market, and I traded it as I
was learning. I wrote (and still write) research on it every single trading day.
There are also examples from the markets that MY traders participate in. I know this for a
fact, because I regularly survey them so that can make sure I’m covering the markets that
interest them most.
Let’s get started!
73.22
Price formed a higher after the RSI crossed above 70 then fell back below it. Yes, this is a
traditional overbought parameter, and it does work. I just want you to stop limiting
yourself to it! This signal offered a fine opportunity to tighten up stops on long positions, or
keep an eye out for a potential trend reversal (topping pattern).

Moving on, an uptrend had been in place, but then the RSI started to deteriorate while in
the Bear Market Resistance Power Zone. There’s a signal emerging as marked by the yellow
highlight. Let’s look at some more Zone action before we explore it.
26.66

RSI fell back down into the Bear Market Support Power Zone, to 26.66. Following
traditional OB/OS rules, you’d look at the return above 30 as a hint that the trend might be
turning back up, tempting you to look for a buy opportunity.

20.46
But that would have been painful! And the clue that the Power Zones give is that the rally
from 26.66 didn’t quite get back to the Bear Market Resistance Power Zone (55 to 65). The
RSI didn’t even break above its prior lows and prior highs, another clue that the ES was still
weak. The downtrend in price continued, again with interesting RSI action forming as per
the yellow highlight.

Continuing, there’s a break of a previous high in price. The purple horizontal line relates to
the actual trading signals that I write about daily on the ES, the trading signals that I used
to use, the trading signals that are in the book that are published. All that detail can be
explored another time. The key point here is that the ES broke above a previous high, then
consolidated (traded sideways). And all that sideways price action corresponded with the
RSI hanging out above the Bull Market Support Power Zone (40‐50).
75.02
Then BOOM, futures took off! The RSI got up to 75.02, then fell back below 70.00. Again, if
you were just sticking to traditional OB/OS parameters, you might have been tempted to
say that the upward move in prices had completed, and even be watching out for a sell
signal…

70.32
But look at what happened. All the ES did was go sideways for a while, not immediately
form a top pattern. And this is a 24‐hour chart (that’s all I use for the ES), showing how
price kept creeping higher during “the overnight” (Globex trading, starts after the regular
market close). By using the Power Zones, you’d be clued in to the persistence of this
uptrend in prices because of the continuous support provided by the 40‐50 area on the RSI,
otherwise known as the Bull Market Support Zone.
84.35

Lastly, the RSI climbed up to 84.35, hitting the Bull Market Resistance Power Zone. Again,
this observation would have kept you on the right side of this market, which was up.
75.02 70.32
26.66 20.46
Let’s take one last look at the signals that unfolded in this one chart example. The 75.02 and
70.32 readings on the RSI fall in line with the traditional “Overbought is above 70” thinking
and would have risked getting you into “sell” mode too early. The orange upward arrows
drawn on price and momentum show you the move from the Bull Market Support Power
Zone (40‐50) to the Bull Market Resistance Power Zone (80‐90). By knowing the Zones,
you would have been able to profit from this!

@CL /Daily/ February 2016 ‐ Current
Looking at Oil, RSI Power Zones shed A LOT of light on what seemed like a sideways‐only
mode starting in February of 2016. The purple horizontal line shows the break above a
previous high. As per the first ES example, this hints at a trend change from down to up. As
the yellow highlight shows, prices declined after the upside break, but they formed a low
that aligned with the RSI holding the Bull Market Support Power Zone (40 to 50).
70.61
The new uptrend pressed forward, and the RSI moved higher to reach 70.61. The indicator

then turned back below 70.00, and this was a traditional sell signal that would have
worked.
The next move lower continued into early August, with RSI pushing below 30.00 then
turning back up as prices rallied. Another traditional signal, this time a buy, that worked.
So, you might be wondering “Hima, why should I keep reading? The traditional signals
work often enough.” Yes, they work, but stick with me to see what happens when they
don’t…

65.16
The rally from the early August low capped out with RSI reaching 65.16 only. This is right
at the Bear Market Resistance Power Zone (55 to 65), but still below the traditional 70 level
that you might have been waiting for.
?????
65.65
63.51
From there, the RSI started to deteriorate, and for the third time now we have this odd
situation of a price and RSI moving away from each other. So, it’s about time we investigate
this!

Price
Time
Lower High
Momentum
Higher Low

Let’s jump back to the clean visual of Price versus Momentum. We've got price trending
higher and momentum trending higher, which makes sense because they're supposed to
move together. But things get interesting when they DON’T move together…
Price
Time
Lower High
Momentum
Higher Low

The red dashed line marks a higher high in price, and a lower high in momentum.

Bearish Higher High

Divergence
Price
Time
Lower High
Momentum
Higher Low

This is called a “Bearish Divergence”. This is a situation in which momentum is pulling

away from price and price is pulling away from momentum. It’s usually a sign that the
underlying force in the uptrend that we’ve been watching unfold is starting to shift, and
that a reversal in price (a price top or peak) may be coming soon.
Bearish
Divergence
Price
Time
Momentum
Higher Low

Continuing with our “clean” simulation, a downtrend unfolds.

Bearish
Divergence
Price
Bullish
Lower Low Divergence
Time
Momentum
Higher Low

The green dashed line marks the formation of a lower low in price, but a higher low on the
RSI. This is known as a “Bullish Divergence”.
Bearish Divergence
IN
Bear Resistance Power Zone
65.65
63.51
Returning to our chart of Oil, the RSI action from the 65.65 to 63.51 peaks showed a
Bearish Divergence against price. AND, this pattern is forming while the RSI is in the Bear
Resistance Power Zone. This is a “double whammy”: bearish pattern in a bearish zone.
You’d be tightening up your stops if you happened to be long, and possibly looking for new

sell opportunities. This is the type of set up where you can be actionable to the other side if
the price reversal happens.
29.98
Prices did decline, and a double bottom formed, bottoming at 29.98 within the Bear
Support Power Zone.
64.45

Another rally in prices unfolded in mid‐November, this time extending until the RSI pushed
toward the upper boundary of the Bear Market Resistance Zone, reaching 64.45.
Bullish Divergence • Exit shorts

IN • Tighten up stops
Bear Support Power Zone • Don’t enter long
24.65

On December 12th, a candle pattern with a very long upper shadow formed, and became the
start of a very long period of sideways trading. But look at how the Bear Resistance Power
Zone continued to hold the RSI down. Prices eventually broke lower, and the RSI weakened
to reach 24.65. Very soon after, prices posted another lower low, but the RSI posted a
higher low, forming a Bullish Divergence. Since this occurred in the Bear Support Power
Zone, the safest strategy would have been to exit any short positions or tighten up stops
(protective buy orders) on them, but not to enter long.

67.05
That Bullish Divergence did turn out to be a bottoming signal, and Oil rallied higher with
the RSI reaching 67.05, probing right into the Bear Resistance Power Zone. Once again, it
did not make its way to the 70.00 traditional overbought level. If you keep looking at the
RSI like a game of Pong (Atari classic!), just moving from 30 to 70 to 30 to 70, over and
over, then you are going to miss out on A TON of tradeable opportunities.
23.99

Prices came off the April 12th high and fell into early May with the RSI falling back into the
Bear Support Power Zone.

IBB: iShares NASDAQ Biotechnology Index /Weekly/ April 2013 ‐ Current
The RSI Power Zones work on any active market on any time frame.
Let’s look at the IBB (biotech stocks index) on a weekly time frame.

Again, the setting remains at 14‐period. In April 2015, a price low formed with RSI in the
Bull Support Power Zone, and the price rally extended to the Bull Resistance Power Zone
(80 to 90).
Bearish Divergence
IN
Bull Resistance Power Zone
• Exit longs
• Tighten up stops
• Don’t enter short
A Bearish Divergence formed over the next few months. This took place in the Bull
Resistance Power Zone. This is a good signal to tighten up stops on long positions or exit
them, but it’s not the safest place to go short.

The index declined following the Bearish Divergence, and then a long period of choppy
trading unfolded. The RSI was stuck between the Bull Market Support Zone and the Bear
Market Resistance zone, essentially hugging the 50.00 level. This marks a trendless
environment.

But guess what? The word “trend” has the word “end” in it because trends do have their
ends. The long green candle you see in this chart shows the start of the breakout from the
consolidation.
Target Zone For Momentum
Now, we’d expect this weekly chart to extend into the Bull Resistance Power Zone, from 80
to 90.
IBB: iShares NASDAQ Biotechnology Index /15‐minute/ April 2013 ‐ Current
Use same Power Zones

on smaller time frame for entry

To trade the move, it’s best to move to a lower time frame. The 15‐minute chart shows the
recent break of a couple of highs (marked by purple horizontal lines). That price action on
the 15‐minute chart was the first indication that this market might be breaking out of the
weekly sideways pattern.

42.69
The same 15‐minute chart then showed a higher low forming with RSI holding at 42.69,
which is within the Bull Support Power zone.


45.81
Target Zone For Momentum
And if that first opportunity to get long was missed, another chance came within a couple
days, with THE SAME 15‐minute chart showed the RSI improving from 45.81. In the short‐
term, we would expect price to continue higher until the RSI reaches the 80 to 90 Bull
Resistance Power Zone.
Another great feature of the RSI Power Zones is that they work under all market
conditions.
@NQ/ Daily/ October 2016 ‐ Current
“Unexpected” market activity following news doesn’t negate this approach
U.S. Election

This chart of NQ (Nasdaq) shows the unexpected market activity that followed Election Day
here in the U.S. in November 2016. On the daily chart, there was a sharp spike down.
U.S. Election
40‐50
But after a couple weeks, it became clear that the Bull Support Power Zone (40 to 50) was
holding.
RSI Above 70
80‐90

RSI continued through 70.00, but the price uptrend persisted with the RSI reaching the Bull
Resistance Power Zone (80 to 90). Without the Power Zones, you might have been in “top
picking” mode way too early on, which is a dangerous mindset for any trader or investor to
hold on to. The RSI Power Zones help stop you from getting too bearish too soon
during an uptrend, and from getting too bullish too soon when prices are in a
downtrend.
RSI Above 70
While prices continued higher but at a slower pace, the RSI had time to work off the 80‐90
overbought conditions, and once again established support in the Bull Support Power Zone.
Prices then resumed higher.

France Election
80‐90
40‐50
The daily chart of NQ shows the move, once again, to the 80‐90 zone for the uptrend. Then,
in May 2017, France had its Presidential Election. The volatility that coincided with this
event made for choppy intraday trading, but the daily chart shows that over the course of
about 5 sessions the futures traded from the Bull Resistance Power Zone to the Bull
Support Power Zone then BOOM moved higher again.
Bearish Divergence
IN
Bull Resistance Power Zone
• Exit longs
• Tighten up stops
• Don’t enter short

This culminated in a Bearish Divergence setting up in the Bull Resistance Power Zone.
Again, it’s best to exit longs in this situation to take profits, or tighten stops on those
positions, but if you’re just trading off the Power Zones then it’s a bit dangerous to simply
go short on this setup.
@YM/ 2‐minute/ June 21st to Current
Our last example is a 2‐minute chart (that’s right, just 120 seconds for each bar!) of the
mini Dow futures. This will reinforce my point that the RSI Power Zones work on any
active market in any time frame.

Price Double Top

IN
Bear Resistance Power Zone
A double top pattern formed in price (essentially two matching price highs). Price broke
down and this all occurred with the 14‐period RSI holding in the Bear Resistance Power
Zone.
Prices declined into the Bear Support Power Zone, BUT they also formed a Bullish
Divergence soon after. This is why it’s important to remember that we aren’t just trading
between the Zones (again, this is not a game of Pong!). You don’t buy just because prices
fall to a Support Power Zone or sell just because they rally into a Resistance Power Zone.
You’ve got to monitor what else is unfolding.

Bullish Divergence • Exit shorts

IN • Tighten up stops
Bear Support Power Zone • Don’t enter long
Here, the oversold conditions got worked off (RSI improved), but price was still showing
lower highs. The Bullish Divergence formed and this would have been a great signal to take
profits on short positions (exit), tighten up stops on short positions (protect baked‐in
profits), but NOT a good time to go long.
The futures fell lower once again, and the RSI fell deep into its lower range, pushing beyond
the 20 to 30 Bear Support Zone.

After walking through these example, it should be clear that RSI Power Zones work, and
that they allow you to trade momentum like you never have before!

Simple Strategies To Boost Your Profits - Trading With RSI Power Zones - Hima Reddy

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Hey

E‐mini S&P 500 Futures / Continuous Contract / Daily / 2 years

When it comes to using only

I’m calling B.S.!!!

Remember “the Bears”

© 2017 Celer Wealth, LLC. All Rights Reserved. Page 2 of 33

E‐mini S&P 500 Futures / Continuous Contract / Daily / 2 years

Now, the market “bears”…

© 2017 Celer Wealth, LLC. All Rights Reserved. Page 3 of 33

E‐mini S&P 500 Futures / Continuous Contract / Daily / 2 years

And the market bulls…

© 2017 Celer Wealth, LLC. All Rights Reserved. Page 4 of 33

@ES /60‐minute chart / May 12th – May 25th

RSI Bear Support Power Zone: 20 to 30

@ES /60‐minute chart / May 12th – May 25th

RSI Bull Resistance Power Zone: 80 to 90

© 2017 Celer Wealth, LLC. All Rights Reserved. Page 5 of 33

Let’s get started!

@ES /60‐minute chart / May 12th – May 25th

© 2017 Celer Wealth, LLC. All Rights Reserved. Page 6 of 33

@ES /60‐minute chart / May 12th – May 25th

@ES /60‐minute chart / May 12th – May 25th

© 2017 Celer Wealth, LLC. All Rights Reserved. Page 7 of 33

@ES /60‐minute chart / May 12th – May 25th

@ES /60‐minute chart / May 12th – May 25th

© 2017 Celer Wealth, LLC. All Rights Reserved. Page 8 of 33

@ES /60‐minute chart / May 12th – May 25th

© 2017 Celer Wealth, LLC. All Rights Reserved. Page 9 of 33

@ES /60‐minute chart / May 12th – May 25th

@ES /60‐minute chart / May 12th – May 25th

© 2017 Celer Wealth, LLC. All Rights Reserved. Page 10 of 33

@ES /60‐minute chart / May 12th – May 25th

© 2017 Celer Wealth, LLC. All Rights Reserved. Page 11 of 33

@CL /Daily/ February 2016 ‐ Current

@CL /Daily/ February 2016 ‐ Current

© 2017 Celer Wealth, LLC. All Rights Reserved. Page 12 of 33

@CL /Daily/ February 2016 ‐ Current

© 2017 Celer Wealth, LLC. All Rights Reserved. Page 13 of 33

@CL /Daily/ February 2016 ‐ Current

@CL /Daily/ February 2016 ‐ Current

© 2017 Celer Wealth, LLC. All Rights Reserved. Page 14 of 33

© 2017 Celer Wealth, LLC. All Rights Reserved. Page 15 of 33

Bearish Higher High

This is called a “Bearish Divergence”. This is a situation in which momentum is pulling

Continuing with our “clean” simulation, a downtrend unfolds.

© 2017 Celer Wealth, LLC. All Rights Reserved. Page 16 of 33

@CL /Daily/ February 2016 ‐ Current

© 2017 Celer Wealth, LLC. All Rights Reserved. Page 17 of 33

@CL /Daily/ February 2016 ‐ Current

@CL /Daily/ February 2016 ‐ Current

© 2017 Celer Wealth, LLC. All Rights Reserved. Page 18 of 33

@CL /Daily/ February 2016 ‐ Current

Bullish Divergence • Exit shorts

© 2017 Celer Wealth, LLC. All Rights Reserved. Page 19 of 33

@CL /Daily/ February 2016 ‐ Current

@CL /Daily/ February 2016 ‐ Current

© 2017 Celer Wealth, LLC. All Rights Reserved. Page 20 of 33

@CL /Daily/ February 2016 ‐ Current

IBB: iShares NASDAQ Biotechnology Index /Weekly/ April 2013 ‐ Current

© 2017 Celer Wealth, LLC. All Rights Reserved. Page 21 of 33

IBB: iShares NASDAQ Biotechnology Index /Weekly/ April 2013 ‐ Current

IBB: iShares NASDAQ Biotechnology Index /Weekly/ April 2013 ‐ Current

© 2017 Celer Wealth, LLC. All Rights Reserved. Page 22 of 33