Relative Strength Index (RSI): The Guide for Traders & Investors

Understanding the 14-period RSI momentum oscillator

Developed by J. Welles Wilder, the Relative Strength Index (RSI) measures the velocity and magnitude of directional price moves on a scale from 0 to 100. Standard settings place overbought levels at 70 and oversold levels at 30.

Trading RSI divergences for trend reversals

RSI divergence occurs when price action makes a higher high, but the RSI oscillator makes a lower high (Bearish Divergence). Conversely, when price makes a lower low while RSI makes a higher low (Bullish Divergence), a powerful trend reversal is often imminent.

RSI trading rules for high win-rate entries

• Never sell simply because RSI touches 70 in a strong uptrend; wait for a confirmed divergence or market structure shift.
• Use the 50 centerline level: RSI staying above 50 confirms bullish control, while staying below 50 indicates bearish control.
• Combine RSI bullish divergence at a key higher timeframe Order Block for maximum confluence.

Avoid buying oversold conditions in strong downtrends

During aggressive market liquidations, RSI can stay below 30 for extended periods. Buying solely because RSI is oversold without price structure confirmation leads to severe drawdowns.