The Relative Strength Index (RSI) is a momentum oscillator that measures the speed and change of price movements on a scale from 0 to 100. Typically, an RSI above 70 indicates overbought conditions, while below 30 suggests oversold conditions. RSI helps traders identify potential trend reversals, entry/exit points, and divergences between price and momentum. It’s most effective in range-bound markets rather than strong trends. While RSI can generate false signals during volatile periods, combining it with other indicators like moving averages or MACD improves reliability. It is a widely used tool in technical analysis.
Example:
A trader avoids buying when RSI rises above 70, signaling potential overbought conditions.
