10 key points You Should always consider when using RSI.

Understand RSI Values

– RSI ranges between 0 and 100. – Readings above 70 indicate overbought conditions, while readings below 30 indicate oversold conditions. – Extreme values suggest a potential reversal but are not definitive signals.

Overbought and Oversold Levels

– Overbought (above 70): Indicates that the asset may be overvalued and due for a correction. – Oversold (below 30): Suggests that the asset may be undervalued and due for a rebound.

Use Divergence as a Signal

– Bullish Divergence: Price makes a lower low, but RSI makes a higher low. This could indicate a reversal to the upside. – Bearish Divergence: Price makes a higher high, but RSI makes a lower high. This could signal a reversal to the downside.

Combine RSI with Other Indicators

RSI is more effective when used alongside other tools, such as Moving Averages, MACD, or support and resistance levels, to confirm signals.

Adjust Period for Specific Strategies

Default RSI period is 14 (14 candles or time units), but traders can customize it. – Short-term trading: Use a lower period (e.g., 7). – Long-term trading: Use a higher period (e.g., 21).

Avoid Sole Reliance on RSI

RSI should not be the sole indicator for making trades. It works best as part of a broader strategy, as it can give false signals during strong trends.

Identify Trend Context

Despit– In strong uptrends, RSI may stay above 50 and frequently enter the overbought zone without a reversal. – In strong downtrends, RSI may remain below 50 and dip into the oversold zone frequently.

RSI Swing Rejections

– Bullish Swing Rejection: RSI enters oversold, rises, pulls back without re-entering oversold, and then moves higher. – Bearish Swing Rejection: RSI enters overbought, dips, rises without re-entering overbought, and then moves lower.

Pay Attention to RSI Centerline (50)

The 50 level acts as a midpoint. – Above 50: Bullish momentum. – Below 50: Bearish momentum.

Adjust Levels for Different Markets

In volatile markets, consider using higher overbought (e.g., 80) and lower oversold levels (e.g., 20) to reduce false signals.