How RSI indicator Helps to trade profitably

How to use RSI profitably

What Is the Relative Strength Index (RSI) indicator?

  • RSI indicator is a momentum indicator, used for technical analysis to determine the stock price’s strength and amplitude.
  • To give you a little background on this widely used indicator, J. Welles Wilder was the creator of this indicator .
  • The RSI is representes as a line graph, that oscillates between a range of 0 to 100.
RSI Indicator

-Values of 70 or above on the RSI indicator indicates that investment is becoming overbought or overpriced. It may be ready for a trend reversal or corrective retreat in price. The RSI reading of 30 or below indicates that the market is either oversold or undervalued.

But keep a note The RSI may stay in overbought or oversold territory for lengthy periods during strong moves.

What does RSI indicator measure?

Traders use the Relative Strength Index (RSI) to assess a stock’s or other investment’s price momentum. The RSI’s primary concept is to track how rapidly traders are bidding up or down on a security’s price. The RSI depicts this result on a scale of 0 to 100. Stocks with a rating of less than 30 are deemed oversold. While Stocks with a rating of more than 70 are considered overbought. Traders will often display this RSI chart alongside the security’s price chart to compare the security’s recent momentum.

What is RSI Divergence?

RSI Divergence

A bullish divergence occurs when the RSI shows an oversold reading followed by a higher low that correlates to similarly lower lows in the market. This indicates that bullish momentum is gaining traction, and a break above the oversold region might mark the beginning of a fresh long position.

A bearish divergence occurs when the RSI shows an overbought reading followed by a lower high that matches the price’s higher highs.

A bullish divergence found when the RSI created higher lows while the price formed lower lows, as shown in the chart below. Although this was a genuine indication, divergences are uncommon when a company is in a long-term trend. More possible signs identified by using flexibly oversold or overbought readings.