How to Properly Use the RSI Indicator

RSI is one of the most commonly used oscillators, but many people misuse it.

• RSI Range: 0-100
• Overbought Zone: >70
• Oversold Zone: <30
• Default Period: 14

"Sell when RSI exceeds 70, buy when it drops below 30"
→ This will often backfire in trending markets.

1. Divergence Signals
   • Price makes a new high, but RSI does not = Bearish Divergence
   • Price makes a new low, but RSI does not = Bullish Divergence
   • Divergence is a more reliable reversal signal.
2. Trend Confirmation
   • In an uptrend, RSI typically ranges between 40-80.
   • In a downtrend, RSI typically ranges between 20-60.
   • The RSI midpoint (50) can serve as a trend boundary.
3. Support and Resistance
   • RSI can also form support and resistance levels.
   • Breaking through the RSI trend line may indicate a price breakout.

Remember: Indicators are auxiliary tools, not a holy grail!