Understand RSI for better trading
The Relative Strength Index (RSI) is a popular momentum indicator, but many traders misuse it. The RSI doesn’t just indicate whether an asset is “overbought” or “oversold” – it provides insight into the strength of the trend and potential reversals.
A reading above 70 generally indicates overbought conditions, while a reading below 30 indicates oversold. But never act based on these numbers alone.
Using RSI effectively
Combine RSI with price action and volume for better signals. For example:
- RSI above 70 with rising price and strong volume → Strong breakout likely
- RSI below 30 forms bullish divergence (RSI rises when prices fall) → Possible trend reversal
For best results, use 14-day RSI on 4H or daily charts. Always set a stop-loss and combine RSI with support and resistance levels to improve accuracy. Never rely on RSI alone.