I use RSI a lot, as you know, but it is not the be-all and end-all.

Sometimes when I'm thinking of the typical 4-year period from broad market cycle peak to cycle peak, I'll use RSI (21) applied to monthly data. Alternatively, in very short-term trading mode, I'll use RSI (7) and (14) applied to 30-minute or 60-minute data, and look for the cross-over of the (7) and the (14) value, i.e., buying condition when the (7) value has been below the (14) but moves up from below 50, possibly below 40 or even below 30 or lower, and doing the opposite for selling conditions, using 100 minus 50, 40, 30, etc.

The point I am making here is that RSI is a mathematical tool, but I am not looking for precise points because the conditions for using it change.

Consider, for example, the red, amber and green traffic lights at an intersection. Unless you know the conditions of the road and your car, the speed of the car and of other cars on the road, and the number of cars on the road, and on and on, you cannot pre-judge your precise reaction to the changing lights.

The problem with any indicator " whether it is based on corporate fundamentals, quantitative measures, economic data or technical indicators " is that users are looking to apply it to rules. However, there is no single rule that applies to all conditions.

Is a P/E ratio of 12 better than one at 18, for instance? Maybe; maybe not. Is VIX at 20 better or worse than a VIX at 16? Again, maybe, maybe not. Is a T-Bill rate of 4.00 pct better or worse than one of 4.25 pct? Maybe...

You get my point.

The use of RSI, STO (which is basically the same as RSI), MACD, and so forth are very simple technical indicators. But by using them, I feel you get to understand the importance of patience and a disciplined approach in trading.

With technical indicators like RSI, you also get to see that companies in the same industry groups, which are affected by the same drivers, whether they be interest rates, commodity prices, consumer spending, etc, have stocks that trade in sync.

So these technical indicators help you link the dots of the big picture.

Over the years of observing price series moving in trends and cycles, sometimes cyclically and sometimes counter-cyclically, you get a feel for the money flow into and out of stocks, industry groups, and sectors.

It is ironic that traders with enough patience and discipline to follow the "buy low, sell high" rule are in the minority, and yet everybody knows that is the only way to make money. Most traders buy stories, which happens to be when the prices are highest, which is the way to lose money.

So, these technical indicators are just indicators, but they help you stay on the right side of the trend. That's a trader's rule #1 to making money. Rule #2 is to make smaller losses than you make profits, so you always have your trigger finger ready to sell when the indicator is flashing an over-bought signal.

Trading this way is simple and it is boring. So too is lying on a beach, but like making money, it's enjoyable.

So my message is that simplicity is better than complexity. Sell into strength ("it's a seller's market") and buy into weakness ("it's a buyer's market"). What could be simpler? And what could be simpler than using RSI to tell you when the conditions of markets are changing from accumulation to distribution and back?

In reviewing these blog notes before uploading them, it hit me that maybe readers like Brutus Maximus simply want me to write something like I'm buying ABC or XYZ today at $45.45 for a 13-week hold and a target of $51.51 based on specific indicators such as #1, #2 and #3. But that's not why I am here. I'm here to write about trading.

I have always said that life doesn't have to be a physical grind or an emotional challenge, and neither does trading.

Trading in fact is all about life. You learn early in life that there is a hard way and an easy way to do anything. You study what people are doing, how they are doing it, how might they do it easier, and then apply that knowledge to your trading.

And that's my philosophy. Work smart. Make life easy.

To help make life easy, one of my rules is to avoid likely problems by holding long positions only in stocks of good quality companies. And good quality does not just mean good PR, but it means consistently high margins and returns on assets, equity and capital invested.

Companies that have good business models and good managers tend to do that.

On my vacation last week, when I was having a pedicure, I told the therapist I had met an important Minister of the govt the evening before. She exclaimed that she hadn't pegged me for a "high achiever". She said I was too laid back, and looked like I should be carrying a guitar, singing a song, not dealing in high finance.

I wondered if Elton John looked like a rock star or Warren Buffett a super trader.

I can usually tell in the first minute or two after meeting someone if they are a settled, patient type, or not. Clearly my friend Brutus Maximus is not.

And I'm not talking Type A personalities or whatever. I know hyper-aggressive types and lazy types who are equally fine traders " but the good ones all have self-confidence. They all understand the need to have patience to wait for the right opportunity, the focus to spot it, and the discipline to seize the moment when it arrives.

The "moment" of course is the right price. It doesn't have to be the top price or the bottom price, and it won't be. It just has to be the price that when consistently applied gives you the return on capital you have set as your goal.

And that is what trading is; it's a process of buying and selling prices. And that's why I like the RSI and other simple mathematical indicators " they help you determine when prices are high and when they are low.

When I worked as a portfolio manager, I once spent 72 straight hours pouring over charts. It is really important to me that you understand what I am about to say. The charts I looked at hour after hour had no hi-lo-close-volume data " just price smoothing lines and time frames.

I would take a smoothing line, say of an exponentially weighted moving average of a price series, which was similar to RSI, for say a food retailer, and I would overlay it with the same line for retailer #2, and then #3, and so on until I ran out of comparable stocks. I would look at bulk food company stocks, then packaged food company stocks. Then I'd look at beer company stocks, and then soft drink company stocks.

And, on and on, from sector to sector, I'd look at overlaid smoothing lines of tens of thousands of companies from all over the world, on this securities exchange or that one, hour after hour, day after day, without sleep, all broken down into small comparable groups by the type of business they did, or (like for example the U.S. local and regional banks) by the locale they operated in.

My base study for each particular group was the smoothing line for what I thought was the highest quality company in that group.

What I was doing of course was studying behavior of the institutional and retail traders of stocks. And you know, by following price movement, I could soon tell what traders were doing with their capital, and so when I watched the talking heads on TV try to tell me something different I took note.

Eventually I could see the massive deception that takes place in the capital marketplace by financial services people, and how the shows like CNBC were being used to facilitate these sell-side stories. And stories that differed from the price movement in capital markets became another indicator for me " cynically, perhaps, a confirming indicator.

But, that's how I learned I was a trader and no longer just somebody in the financial services industry with a selling job to do, which I was at the time. As I say, somewhere along the line " after studying hundreds of thousands of charts " I decided to cease being the "Dream Merchant" and to start being a Trader " a person who seeks an understanding into changing opinions.

Most people who deal with securities at Humungous Bank & Broker are not traders, you know. They are sell-siders, stock distributors, asset gatherers, storytellers, or whatever in support of financial services. But they are not capital market traders.

And traders are not investors either. Investors are buyers and sellers of companies, including the physical assets, the human resources and the intellectual property; but traders deal only in prices of securities.

So to sum up, a trader's job is to trade prices, and there are fundamental, quantitative, economic and technical indications of whether a price is low or it is high, and RSI is an important technical indicator, but all of these are just indications, which are best used in combination.

When trading capital markets, there are no absolutes, just opinions. For every trade there is a buyer, with one opinion, and a seller, with the opposite opinion, at a price. In a moment that price will change because opinions will change.

If you are interested in RSI of price series data, the concept was well defined by Welles Wilder, who wrote a popular book on the subject.

Charting services, like Colin Twiggs, an Aussie who operates Incredible Charts, can be very helpful too. Here is the Incredible Charts link to RSI and to the calculation of RSI and it's relevance as a momentum indicator.

If you poke around the Twiggs site, you will probably learn something about RSI and other technical indicators. He covers a lot of material very well.

This discussion has been a bit rambling, but to me the success of something always comes when you understand yourself, what it is you are doing, and why. I am afraid that by the letters I receive, many of you think there is a lot more complexity involved in trading and in technical indicators (like RSI) than truly there is.

Have a good day. Most of mine will be applied to (i) organizing a global markets database, (ii) organizing the Virtual Investor Club, and (iii) organizing pdf reports such as (a) market by country, (b) market by sector, (c) Cara 100, (d) Energy Stocks, (e) Metal Stocks, (f) Tech Stocks, (g) Bank Stocks (h) Fixed Income (i) Currencies/Economics, (j) Exchange Traded Funds, and (k) Dow 30 Stocks.

By the end of the month, I should be in good shape.