Everyone Uses The RSI. Here’s Why Some Traders Still Have an Edge: Part 2

The subtle art of knowing where to look.

The Best Trading Indicators Don’t Predict Price.

In Part 1, I argued that your trading edge doesn’t come from finding an indicator nobody else uses.

[embed]Everyone Uses The RSI. Here’s Why Some Traders Still Have an Edge: Part 1 Trading is weird.medium.com

Millions of traders use RSI.

Millions use moving averages.

Millions watch volume, MACD, volatility, and support and resistance.

Yet they don’t all see the market the same way.

That raises a more fundamental question:

What actually makes a metric worth using?

I think the answer starts with understanding what price action really is.

Because every indicator, oscillator, ratio, or mathematical model is ultimately doing the same thing:

It’s taking some characteristic of price action and transforming it into another way of looking at the market.

And that transformation can be incredibly valuable.

Price Is More Than the Number on the Screen

When you look at Bitcoin trading at $64,000, you’re seeing one number.

But that number contains an enormous amount of information.

Where was Bitcoin yesterday?

Where was it a month ago?

How quickly did it get here?

How much did it move to get here?

How frequently has price traded around this level?

How large are the typical daily moves?

Is price making higher highs?

Are those highs accelerating?

Is momentum increasing or decreasing?

How much volume accompanied the move?

How far is price from its longer-term average?

I think you get it…

All of these characteristics are contained within price action.

But they’re difficult to see by simply staring at the price.

That’s where mathematics and color-coded squiggly lines become quite useful.

A Good Metric Extracts Something Fundamental From Price

Consider a moving average.

The moving average isn’t predicting Bitcoin.

It’s taking a series of historical prices and smoothing them.

Why is that useful?

Because it changes your perspective.

Instead of seeing thousands of individual price fluctuations, you can see the broader direction of the market.

RSI does something different.

It transforms recent price changes into a measurement of strength in relation to its past movements.

Volatility metrics transform price fluctuations into a measurement of how much the market is moving.

None of these metrics creates new information out of thin air.

They reorganize information that already exists in price action.

And that’s the key.

What Makes a Metric “Good”?

I don’t think a metric is good simply because it produces profitable trades.

That’s too narrow.

A quality metric should tell you something meaningful about the market that is difficult to see from raw price alone.

It should isolate a first-cause characteristic of price action.

It should give you a different perspective on a fact that is hiding in plain sight.

And ideally, that perspective should be useful to an individual mind when making decisions.

That’s a much higher standard than:

“This indicator gave me a buy signal.”

A buy signal can be accidental.

A useful measurement should have a reason to exist.

Think About What Actually Makes Up Price Action

If you strip trading down to its most basic components, what are you left with?

Price Action.

Is that enough?

An Indicator Is Essentially a Different Lens

Imagine looking at a mountain.

From one angle, you see its height.

From another, you see its slope.

From another, you see how far it extends.

None of those views is the “correct” mountain.

They’re different perspectives of the same object.

Trading metrics work similarly.

Price is the underlying object.

The metric is the lens.

RSI gives you one perspective.

A moving average gives you another.

Volatility gives you another.

A cycle measurement gives you another.

The purpose isn’t to find the one metric that reveals the future.

It’s to build enough useful perspectives that you can form a more accurate picture of what is happening.

To attempt to gain fuller access to the individual “personality” of the ticker in question.

This Changes How You Should Think About Indicators

Instead of asking:

“Does RSI work?”

I’d ask:

“What information does RSI extract from price that I can’t easily see otherwise?”

That’s a much more interesting question.

RSI doesn’t need to predict the next Bitcoin move to be useful.

It can help you understand momentum.

A moving average doesn’t need to predict the next crash.

It can help you understand trend.

A volatility measurement doesn’t need to predict the next breakout.

It can help you understand the market’s current movement regime.

The metric has a job.

Your job is to understand that job.

The Best Frameworks Don’t Collect Indicators

This is where traders can go completely off track.

They find an indicator they like.

Then another.

Then another.

Eventually their chart is covered in information.

But more information doesn’t automatically create more understanding.

In fact, it can do the opposite.

If five indicators are all measuring slightly different versions of momentum, you might think you have five independent pieces of evidence.

You may actually have five ways of looking at essentially the same thing.

That’s not diversification of information.

That’s duplicative and disorienting.

A quality framework should therefore ask:

What aspect of price am I measuring?

And then:

Does this metric give me information that I don’t already have?

That’s a much better way to construct a trading system.

This Is Where Mathematics Becomes Powerful

One of the most interesting things about trading is that you can take something as simple as price and transform it mathematically into something completely different.

You can calculate rate of change.

You can measure deviations from an average.

You can normalize price.

You can measure volatility.

You can compare current conditions with historical distributions.

You can calculate momentum over different time periods.

You can measure the position of price within a range.

You can examine relationships between variables.

And suddenly, the same Bitcoin price chart becomes dozens of different datasets.

The price didn’t change.

Your perspective did.

And so will your results.

That’s the power of quantitative analysis.

The Goal Is Not Prediction. It’s Perspective.

This is perhaps the biggest misconception about indicators.

Traders often want them to tell the future.

But I think their more valuable function is helping you understand the present.

If you can accurately describe the current market, you have a much better foundation for making a decision about what might happen next.

That’s a subtle but important distinction.

You aren’t saying:

“RSI is 28, therefore Bitcoin will rise.”

You’re saying:

“Momentum has reached an extreme relative to recent price behavior. What does that mean in the context of the broader trend, volatility, and market structure?”

Now you’re thinking.

Your Edge Starts With Seeing What Others Don’t

This brings us back to the idea of an individual trading edge.

Your edge doesn’t necessarily come from possessing information nobody else has.

Markets make that increasingly difficult.

Your edge can come from interpreting common information more effectively.

Everyone sees Bitcoin’s price.

But perhaps your framework helps you see momentum changing before it becomes obvious in the raw price.

Everyone sees Bitcoin falling.

But perhaps your measurements show that volatility is contracting while selling pressure is weakening.

Everyone sees RSI becoming oversold.

But perhaps you understand that the significance of that reading changes depending on the larger trend.

You’re not seeing different price.

You’re interpreting different information extracted from the same price.

This Is Why Your Framework Has to Be Yours

And now Part 1 comes back into the picture.

Even if two traders use exactly the same metrics, they can still create different frameworks.

One might prioritize momentum.

Another might prioritize trend.

One might require several conditions to align.

Another might act on a single strong signal.

That’s okay.

Because the purpose of the framework isn’t to create the objectively perfect interpretation of the market.

It’s to create a perspective that is:

measurable, testable, understandable, and executable.

And ultimately, one that fits the person using it.

Final Thoughts

I don’t think the answer to becoming a better trader is finding more indicators.

It’s learning to ask better questions about the ones you already have.

What exactly does this metric measure?

What part of price action does it extract?

Why is that information relevant?

What does it tell me that raw price doesn’t?

Is it actually measuring something different from the other metrics I’m using?

How does it behave in different market environments?

And most importantly:

Does this information help me build a more accurate picture of the market?

Because that’s ultimately what trading is.

You’re trying to make decisions under uncertainty with incomplete information.

You will never know exactly what happens next.

But you can improve the quality of your perspective.

And I believe that’s where a real trading edge begins.

The best indicator isn’t the one that predicts the future.

It’s the one that helps you see the present more accurately.

Price is the raw information.

Mathematics gives you different ways to interpret it.

Your framework determines how those perspectives come together.

And your trading decisions are only as good as the picture you’ve built in your mind.

Thanks for reading!

My best stuff is at gordontradingcompany.com

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