Question 1

What is RSI?

Accepted Answer

The Relative Strength Index (RSI) is a momentum oscillator developed by J. Welles Wilder Jr. It measures the speed and magnitude of recent price changes, oscillating between 0 and 100. RSI helps traders identify overbought and oversold conditions, as well as potential trend reversals through divergence.

Question 2

How it works

Accepted Answer

RSI compares the average gain to the average loss over a specified period (default: 14). The formula is: Average gains and losses are smoothed using Wilder's method (exponential smoothing), giving more weight to recent price changes.

Question 3

Key levels

Accepted Answer

| Level | Meaning | |-------|--------| | **Above 70** | Overbought zone — the asset may be overvalued and could reverse downward | | **Below 30** | Oversold zone — the asset may be undervalued and could reverse upward | | **50** | Neutral midpoint — acts as dynamic support in uptrends, resistance in downtrends | | **80/20** | Extreme levels used in strong trends for delayed signals |

Question 4

Key features

Accepted Answer

- **Bounded oscillator** — always between 0 and 100, easy to interpret - **Momentum measurement** — quantifies the strength of recent price moves - **Versatile** — works on all timeframes and all asset classes - **Divergence detection** — divergences between RSI and price signal reversals

Question 5

Overbought / Oversold

Accepted Answer

- **Buy signal:** RSI crosses below 30, then crosses back above 30 - **Sell signal:** RSI crosses above 70, then crosses back below 70

Question 6

Centerline crossover

Accepted Answer

- **Bullish:** RSI crosses above 50 — momentum shifting to buyers - **Bearish:** RSI crosses below 50 — momentum shifting to sellers

Question 7

Divergence

Accepted Answer

- **Bullish divergence:** Price makes a lower low, but RSI makes a higher low — potential reversal up - **Bearish divergence:** Price makes a higher high, but RSI makes a lower high — potential reversal down

Question 8

Failure swings

Accepted Answer

- **Bullish failure swing:** RSI falls below 30, bounces above 30, pulls back (stays above 30), then breaks its prior high - **Bearish failure swing:** RSI rises above 70, drops below 70, rallies (stays below 70), then breaks its prior low

Question 9

Parameters

Accepted Answer

| Parameter | Default | Description | |-----------|---------|-------------| | Period | 14 | Number of candles for calculation |

Question 10

Example conditions

Accepted Answer

| Condition | Meaning | |-----------|--------| | | RSI is in oversold zone | | | RSI is in overbought zone | | | RSI just crossed above 30 (buy signal) | | | RSI just crossed below 70 (sell signal) | | | Momentum turned bullish | | | Extreme oversold — strong mean-reversion signal |

Question 11

Tips

Accepted Answer

- Shorter periods (e.g., 7) make RSI more sensitive — good for scalping - Longer periods (e.g., 21) smooth out noise — better for swing trading - In strong trends, RSI can stay overbought/oversold for extended periods — don't fight the trend - Combine with trend indicators (SMA, EMA) for confirmation - RSI works best in ranging markets; in strong trends, use 80/20 levels instead of 70/30 - RSI divergence is one of the most powerful reversal signals in technical analysis

Question 12

FAQ

Accepted Answer

**Q: RSI stays above 70 for a long time — is it broken?** A: No. In strong uptrends, RSI can remain overbought for weeks. This indicates strong momentum, not a sell signal. Consider using 80/20 thresholds in trending markets. **Q: What's the best RSI period?** A: 14 is the standard and works well for most timeframes. Use 7 for scalping (more signals, more noise) or 21 for swing trading (fewer, more reliable signals). **Q: Can I use RSI as the only entry condition?** A: It's possible but not reco

Question 13