RSI (Relative Strength Index)
Lesson 3 of 127 min5 exercises
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The Momentum King
RSI is one of the most popular momentum indicators. It measures the speed and magnitude of recent price changes on a scale from 0 to 100.
Reading RSI
Traditional Interpretation:
- RSI > 70: Overbought (price may be too high, could reverse)
- RSI < 30: Oversold (price may be too low, could bounce)
- RSI = 50: Neutral
Trend-Adjusted Interpretation:
- In uptrends, RSI often stays 40-80
- In downtrends, RSI often stays 20-60
- Strong trends can stay "overbought" for extended periods
- RSI > 70: Overbought (price may be too high, could reverse)
- RSI < 30: Oversold (price may be too low, could bounce)
- RSI = 50: Neutral
Trend-Adjusted Interpretation:
- In uptrends, RSI often stays 40-80
- In downtrends, RSI often stays 20-60
- Strong trends can stay "overbought" for extended periods
Watch out
Overbought doesn't mean "sell immediately"! In strong uptrends, RSI can stay above 70 for weeks. Use RSI for timing, not trend direction.
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RSI Divergence
Bullish Divergence: Price makes lower low, but RSI makes higher low
→ Momentum improving despite lower price → Potential reversal up
Bearish Divergence: Price makes higher high, but RSI makes lower high
→ Momentum weakening despite higher price → Potential reversal down
Divergences are powerful signals but work best at extremes.
→ Momentum improving despite lower price → Potential reversal up
Bearish Divergence: Price makes higher high, but RSI makes lower high
→ Momentum weakening despite higher price → Potential reversal down
Divergences are powerful signals but work best at extremes.
Example
GME falls to $20, RSI = 25 GME falls further to $18, RSI = 30 (higher!) This bullish divergence suggests selling pressure is exhausting - potential bounce ahead.
Price lower, RSI higher = Bullish divergence
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RSI as Trend Confirmation
- RSI crossing above 50: Bullish momentum taking control
- RSI crossing below 50: Bearish momentum taking control
- RSI > 50 in uptrend: Confirms healthy trend
- RSI < 50 in downtrend: Confirms selling pressure
- RSI crossing below 50: Bearish momentum taking control
- RSI > 50 in uptrend: Confirms healthy trend
- RSI < 50 in downtrend: Confirms selling pressure
Tip
SUTOK shows RSI in every analysis. Look for the RSI signal to see current reading and whether it's bullish or bearish zone.
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Key takeaways
- RSI measures momentum on a 0-100 scale
- Above 70 = overbought, Below 30 = oversold, but not automatic signals
- RSI divergences are powerful reversal signals
- RSI above 50 = bullish zone, below 50 = bearish zone
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