RSI Strategy: Rules, Best Settings and NSE Test Results

The Relative Strength Index (RSI), from J. Welles Wilder Jr., compares the size of recent up moves with recent down moves on a scale of 0 to 100. With the usual length of 14 candles:

RSI measures how fast price has moved, not whether a stock is cheap or expensive. A reading under 30 says the fall was fast; in a strong downtrend RSI can stay under 30 while the price keeps falling. That is why the plain "buy under 30, sell over 70" rule is worth testing before trusting, which we do below.

Which RSI length works best on intraday charts? We ran the same 30/70 rule (buy when RSI crosses back above 30, sell when it crosses above 70, stop 2%, target 4%) with RSI lengths 7, 9, 14 and 21 on 5-minute and 15-minute candles. A shorter length reacts faster and gives more signals, so more charges.

The textbook rule, RSI(14) 30/70, on every candle size we hold. Daily runs use delivery charges; the others intraday charges and the square-off.

Year-by-year results, the daily history back to 2017 and an RSI trend pullback rule are on RSI 30/70 strategy success rate in India.

Andrew Cardwell observed that in an uptrend RSI tends to stay between about 40 and 80, so dips find support near 40 to 50 rather than 30. The setup buys that dip. Our rule, on 15-minute candles:

• Price above its 50 EMA and above VWAP, and the last daily close above the daily 50 EMA (the uptrend).
• RSI(14) between 40 and 50 (the dip, not oversold).
• A bullish hammer or bullish engulfing candle (buyers stepping in).
• Stop 1.5 × ATR(14) below the entry; target 2.5 times the stop distance. Open trades close at the intraday square-off.

The old page also asked for a pullback to a horizontal support level; there is no rule for that yet, so it is not in the test.

With all four conditions together the setup is rare: 53 trades in a year across 15 stocks. That is too few to call the result good or bad with confidence; treat it as a first look.

A common rule is to ignore RSI signals in the first half hour, when opening gaps make RSI jump. We ran RSI(14) 30/70 on 15-minute candles with no entries before 09:45 IST and compared it with the same rule taking every signal.

Skipping the first half hour did not help: -19.5% against -18.1%.

Regular divergence warns of a turn: price makes a higher high while RSI makes a lower high (bearish), or price makes a lower low while RSI makes a higher low (bullish). Hidden divergence points to the trend going on: in an uptrend price makes a higher low while RSI makes a lower low; in a downtrend price makes a lower high while RSI makes a higher high.

We have not tested either. A divergence rule compares swings of price with swings of the RSI line, and LeadFinn's engine finds swings on price but not on the RSI line yet. Rather than guess, we show no number; the test will be added when the engine can do it. Until then, wait for price itself to confirm (a break of the last swing) before acting on a divergence.

• Selling only because RSI is above 70. In a strong trend RSI can stay above 70 while price keeps rising.
• Buying only because RSI is below 30. The same in reverse: the 30/70 results above show what that rule did after charges.
• Trading divergence without price confirmation. A divergence can repeat over several swings before price turns, if it turns at all.
• Ignoring the bigger trend. An oversold 15-minute reading inside a falling daily trend is more often a pause than a bottom.
• Forgetting charges. Short candles give many signals; see how the charges grow in the RSI length table.