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RSI Indicator Strategy
Master momentum trading with our comprehensive RSI analysis
Overview
- •RSI is a momentum oscillator that measures the speed and change of price movements.
- •It oscillates between 0 and 100 — above 70 is commonly considered overbought and below 30 oversold.
- •RSI helps identify potential reversals and OB/OS conditions across markets.
How RSI Works
1.
Calculation
RSI is computed from average gains and losses over a lookback period (typically 14).
2.
Overbought/Oversold
Readings above 70 suggest overbought; below 30 suggest oversold conditions.
3.
Divergence
When price makes new highs/lows but RSI does not, a potential reversal may be near.
Key Strategies
1. Overbought/Oversold Trading
- •Buy when RSI crosses above 30 (exiting oversold) and sell when it crosses below 70 (exiting overbought).
- •Use confluence from price action or other indicators for confirmation.
2. RSI Divergence
- •Bullish divergence: price makes lower lows while RSI makes higher lows.
- •Bearish divergence: price makes higher highs while RSI makes lower highs.
3. RSI Trend Lines
- •Draw trend lines on the RSI itself to spot potential breakouts/breakdowns.
- •Combine RSI breaks with market structure for entries/exits.
Limitations
- •In strong trends the RSI can remain overbought/oversold for extended periods.
- •Choppy, sideways markets can create false signals.
