Technical analysis can be dangerous.
I know, coming from me, that’s a pretty surprising take. I’m a technical trader, after all. I’ve built my fortune on technical analysis.
But sometimes, people view technical indicators in a vacuum. The “if this occurs, then that will happen” mentality often dominates to the point that traders get trapped in their own analysis.
And that can lose you a lot of money.
One such indicator that I often see misused is the relative strength index, commonly called the RSI. It’s a measure of momentum that attempts to identify when a stock is “overbought” or “oversold.”
In simple terms, when RSI gets too high, the stock is technically “overbought,” and you should stay away. When it’s “oversold,” you should cash in.
But a few months ago, I ignored this indicator. I did the opposite of what it said – and I just made a 165% return because of it.
See, there’s a different way to play overbought and oversold stocks. A much smarter – and more lucrative – way.