RSI — Relative Strength Index
RSI is an oscillating indicator that helps traders determine:
Overbought and oversold conditions,
Reversal points or trend exhaustion,
The strength of buyers vs. sellers.
How RSI Works
Calculated over a period (usually 14) by comparing the size of upward vs. downward price movements.
Values range from 0 to 100.
Displayed in a separate window below the price chart.
Key RSI Levels
50 → midpoint of the scale.
Above 50 → buyers dominate (possible uptrend).
Below 50 → sellers dominate (possible downtrend).
70 and above → overbought (trend may be ending, potential reversal downward).
30 and below → oversold (trend may be ending, potential reversal upward).
How to Use RSI
For Market Entry
Buy: when RSI drops below 30 (oversold) and starts to rise.
Sell: when RSI climbs above 70 (overbought) and starts to fall.
For Market Exit
Use the 30 and 70 levels as signals for trend exhaustion.
For Signal Filtering
RSI consistently above 50 → confirms an uptrend.
RSI consistently below 50 → confirms a downtrend.
RSI Settings
Default period: 14 (balanced sensitivity).
Higher than 14: less sensitive (fewer false signals, slower reaction).
Lower than 14: more sensitive (more signals, but higher chance of false ones).
Advantages of RSI
Helps spot potential reversals early.
Works well in sideways (range-bound) markets.
Can be combined with other indicators (e.g., MACD, Moving Averages) for better signal confirmation.
Conclusion:
RSI is a powerful tool for detecting overbought/oversold zones, trend confirmation, and reversal opportunities. It’s especially effective when used together with other technical indicators.