Relative Strength Index (RSI)

What it measures:

RSI is a momentum oscillator bounded between 0 and 100 that measures the speed and change of recent price movements to evaluate overbought or oversold market conditions.

How to interpret it:

• Overbought / Oversold: RSI readings above 70 indicate overbought conditions; readings below 30 indicate oversold conditions.
• 50 Centerline: Crossing above 50 indicates bullish momentum control; crossing below 50 indicates bearish control.
• Divergence: Higher price highs with lower RSI highs warn of impending trend exhaustion.

Used for:

• Identifying overextended price levels and potential mean-reversion points.
• Confirming overall market momentum and divergence signals.

Limitations:

• During strong secular bull or bear trends, RSI can remain overbought or oversold for extended periods.
• Can yield premature reversal signals in strong momentum markets.