What is RSI?
The Relative Strength Index (RSI) is a momentum oscillator developed 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. RSI oscillates between 0 and 100.
How to Read RSI
Above 70 = Overbought: The asset has risen sharply and may be due for a pullback. This does not automatically mean sell — in strong uptrends, RSI can remain above 70 for extended periods.
Below 30 = Oversold: The asset has fallen sharply and may be due for a bounce. In strong downtrends, RSI can stay below 30 for a while.
50 Level — The Centerline: RSI above 50 generally indicates bullish momentum. Below 50 indicates bearish. Many traders use this as a trend filter.
RSI Divergence — The Hidden Signal
Bullish Divergence: Price makes a lower low, but RSI makes a higher low. This indicates weakening selling momentum and often precedes an upward reversal.
Bearish Divergence: Price makes a higher high, but RSI makes a lower high. Buying momentum is weakening despite rising prices.
RSI Trading Strategies
Strategy 1 — Oversold Bounce: Wait for RSI to drop below 30 on the 4-hour chart. Wait for RSI to cross back above 30. Enter long with stop-loss below the recent low.
Strategy 2 — RSI + Support: Combine RSI oversold readings with key chart pattern levels for higher-probability trades.
Strategy 3 — RSI Divergence: Identify divergence on the 1-hour or 4-hour chart. Wait for price confirmation. This has a high success rate when combined with Fibonacci levels.
For comprehensive RSI strategies, check our trading courses.