RSI
An indicator of the speed of the move, from 0 to 100. It shows how sharply price moved, not where it is going.
RSI — what it is?
RSI is an oscillator from zero to one hundred that compares the strength of rises with the strength of falls over a period. Values above seventy are conventionally called overbought, below thirty oversold.
Those zones mean nothing on their own. In a strong trend RSI stays overbought for weeks, and selling on that basis ends in a string of losses.
The one thing RSI is needed for in our method is divergence. A disagreement between a new extreme in price and an indicator extreme that fails to confirm it shows that the impulse is running dry.
RSI — how it is built?
You do not need to install it, it is in every platform. In TradingView open the "Indicators" tab and type Relative Strength Index — that is what RSI stands for. The default period is 14 and there is no point in changing it. Watch the relationship, not the level: price made a new extreme, RSI did not — that is the cue to go looking for a reversal in the structure.
RSI — common mistakes
Selling when RSI is above seventy and buying below thirty.
Entering on divergence without confirmation from a shift in structure.
Hunting for divergences on lower timeframes, where there are dozens a day.
Tuning the indicator's period to fit history.
Related to
Glossary
- oscillator
- an indicator that swings inside a fixed range.
- overbought
- an oscillator sitting in its upper zone. It does not mean a reversal by itself.
- oversold
- an oscillator sitting in its lower zone.
- trend
- a steady directional move in price.
- divergence
- price and the indicator pointing in different directions.
- indicator
- a calculation based on price or volume, drawn on the chart.