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What Is the RSI Indicator and How to Read It?
RSI (Relative Strength Index) is a momentum indicator measuring the speed of price movements between 0-100. Above 70 is generally read as overbought, below 30 as oversold; but these thresholds alone are not buy/sell commands.
How to interpret the RSI value?
RSI is calculated from the ratio of average gains to average losses over the selected period. In strong trends RSI can stay in extreme zones for a long time; a reading above 70 is not a certain precursor of a drop, nor is below 30 a bottom guarantee. Read the indicator together with trend direction, volume and support/resistance.
What do extreme zones say?
Above 70 means the market has risen quickly; below 30 means selling pressure is intense. Treating an extreme reading as a counter-signal in the trend direction can trigger early positions; the turn off the threshold and structure break are more meaningful.
- In strong trends RSI can stay extreme for weeks.
- Watch the turn off the threshold, not just the cross.
- Higher timeframes produce weightier signals.
What is divergence?
If price makes a new low while RSI makes a higher low, that is positive divergence; if price makes a new high while RSI makes a lower high, that is negative divergence. Divergence shows weakening momentum but gives no reversal timing.
- Do not make divergence a standalone trade reason.
- Wait for a price-structure break for confirmation.
- Multi-timeframe divergence is stronger evidence.
Checklist
- Which period and timeframe is RSI on?
- Is the reading used with or against the trend?
- Do volume and price structure support the signal?
- Was the invalidation level written in advance?
Frequently asked questions
No. Overbought can persist in a strong trend; it is not a sell command on its own.
The standard is 14 periods; shorter is more sensitive, longer produces smoother signals.