Guide to Use the RSI (Relative Strength Index) in Trading

The RSI is one of the most widely used technical indicators in the world. Created by J. Welles Wilder in 1978, it measures the speed and magnitude of recent price changes to evaluate whether an asset is overbought or oversold. The RSI is a momentum oscillator that moves between 0 and 100, comparing the average size of recent price gains to recent price losses over a specified period (default: 14 periods).

Overbought (above 70)

The asset has been rising rapidly and may be overextended. In a strong uptrend, RSI can stay above 70 for extended periods. RSI above 70 combined with a bearish reversal candlestick at resistance is a strong sell signal.

Oversold (below 30)

The asset has been falling rapidly and may be due for a bounce. Combine RSI below 30 with a bullish reversal pattern at support for higher-probability buy signals.

RSI at 50 (centreline)

In an uptrend, RSI typically stays above 50; in a downtrend, typically below 50. A cross through the 50 level can confirm a trend change.

Bearish Divergence

Price makes a new high, but RSI makes a lower high. This means price is rising but momentum is weakening — an early warning of potential reversal. Particularly powerful at a resistance level.

Bullish Divergence

Price makes a new low, but RSI makes a higher low. The downtrend is losing steam and buyers are starting to return. A high-probability buy signal at support.

Best practices

Never use RSI as a standalone signal. Always confirm with price action (candlestick patterns, support/resistance). Adjust the RSI period for your time frame — a shorter period (9) is more sensitive; a longer period (21) suits swing traders.

Key Takeaway: RSI tells you whether momentum is building or fading. Used with support/resistance and candlestick confirmation, RSI divergence is one of the most reliable trade entry signals available.