📘 RSI Indicator: A Two-Page Guide for Smart Trading
🔍 Page 1: Understanding RSI – The Basics
📌 What is RSI?
The Relative Strength Index (RSI) is a momentum oscillator developed by J. Welles Wilder. It
measures the speed and magnitude of recent price changes to determine if an asset is overbought or
oversold.
Scale: 0 to 100
Default period: 14 (can be adjusted)
Type: Leading indicator (can give early signals)
📈 RSI Formula:
RSI = 100 – (100 / (1 + RS))
Where:
RS (Relative Strength) = Average Gain over X periods / Average Loss over X periods
Typically calculated over 14 candles (default)
🧠 Interpretation of RSI Levels:
RSI Value Meaning
70+ Overbought – Price may reverse ↓
50 Neutral / Midline
30- Oversold – Price may reverse ↑
👉 RSI does not predict trend direction—it signals potential reversal or continuation.
🎯 When to Use RSI:
To spot potential trend reversals
To confirm trend strength
To identify bullish or bearish divergences
As a filter for entries (buy/sell)
🛠️ How to Add RSI to Your Chart:
1. Open your charting platform (e.g., TradingView, MetaTrader).
2. Go to Indicators, type "RSI".
3. Set the period to 14 (default) or customize (e.g., 9 for faster signals).
4. Plot it below your price chart.
🧠 Pro Tip:
Use RSI with candlestick patterns, support/resistance, or moving averages to strengthen your
edge.
On trending markets, RSI may stay in overbought/oversold for a long time.
⚠️ Warning:
RSI is not foolproof. In strong trends, it can give false reversal signals. Always combine it with price
action or confirmation tools.
🔍 Page 2: Advanced RSI Techniques and Strategy
✅ 1. RSI Reversal Strategy (Basic)
Buy Signal:
RSI drops below 30, then rises back above it.
@baudry
Combine with a bullish candle or support level.
Sell Signal:
RSI rises above 70, then drops below it.
Combine with a bearish candle or resistance level.
✅ 2. RSI Divergence Strategy
This is a powerful method to catch early trend reversals.
Type Signal
Bullish Divergence Price makes a lower low, RSI makes a higher low → Buy
Bearish Divergence Price makes a higher high, RSI makes a lower high → Sell
🎯 Works best in range-bound or weak-trend environments.
✅ 3. RSI Trend Confirmation
In a bullish trend, RSI typically stays above 40–50.
In a bearish trend, RSI typically stays below 50–60.
Use the RSI midline (50) to detect trend shifts:
RSI crosses above 50 → trend is gaining bullish momentum.
RSI crosses below 50 → trend is gaining bearish momentum.
✅ 4. RSI Swing Trading Strategy
For pullback entries in a trend:
Wait for RSI to return near 40–50 in an uptrend, or 50–60 in a downtrend.
Enter in the direction of the trend once RSI bounces off that level.
📌 Combine with:
Fibonacci retracements
Trendlines or moving averages
🧠 RSI Settings Customization
RSI Period Behavior Best Use Case
7–9 Very sensitive Scalping or short-term trading
14 Balanced General use (default)
21 – 28 Smoother Long-term trend confirmation
🧠 Practical Tips:
❌ Don’t trade RSI alone – always combine with structure, patterns, or volume.
🕰️ RSI is best used in consolidating or fading markets, not in strong trends.
📉 In downtrends, RSI may peak at 60–70 only.
📈 In uptrends, RSI may bottom at 30–40 only.
✅ Final Checklist Before Using RSI:
Am I trading against a strong trend? (Avoid that)
Is RSI showing divergence from price?
Are there nearby support/resistance levels?
Is RSI confirming the breakout or reversal?
RSI is a simple yet powerful tool—treat it like a compass, not a map. It guides your direction but needs
other tools to confirm your destination.
@baudry
