RSI Reversal

RSI below 30 indicates the stock is 'oversold' - it has fallen rapidly and may be due for a bounce. However, don't buy immediately. Wait for RSI to cross back above 30 as confirmation of reversal.

RSI above 70 indicates 'overbought' conditions, but don't sell immediately. Wait for RSI to cross back below 70 for confirmation. In strong uptrends, RSI can stay above 70 for extended periods.

The standard is RSI(14) as Wilder originally specified. For shorter-term trading, try RSI(7) or RSI(9). For position trading, try RSI(21). Start with 14 and adjust based on results.

Common reasons: 1) Trading against a strong trend (RSI can stay oversold), 2) Not waiting for crossover confirmation, 3) No support/resistance confluence, 4) Strong downtrend continuation.

No. RSI is mathematically bounded between 0 and 100. RSI of 0 means all losses with no gains; RSI of 100 means all gains with no losses. Both extremes are rare in practice.

Divergence is when price and RSI move in opposite directions. Bullish divergence: price makes lower low, RSI makes higher low (reversal up likely). Bearish divergence: price makes higher high, RSI makes lower high (reversal down likely).

Add a 50 or 200 MA. Only take RSI oversold buys when price is above MA (uptrend). Only take RSI overbought sells when price is below MA (downtrend). Or use ADX: trade RSI reversals only when ADX < 25.

Bullish failure swing: RSI drops below 30, rallies, pulls back but stays ABOVE 30, then breaks the prior rally high. This confirms bulls have taken control. It's Wilder's preferred reversal signal.

Use higher timeframe RSI for bias, lower for entry. Example: Weekly RSI < 40 (oversold bias) + Daily RSI crosses above 30 (entry signal). Full alignment = highest conviction.

For mean reversion: Exit when RSI reaches 50-60 (neutral). For trend riding: Exit when RSI reaches 70 or trail with stops. Hybrid: Exit half at RSI 50, trail rest.

In bull markets, RSI operates 40-80 with support at 40-50. In bear markets, RSI operates 20-60 with resistance at 50-60. Adjust your oversold/overbought levels based on the major trend.

Connors RSI = (RSI(3) + Streak RSI + Percent Rank) / 3. It's a composite indicator for short-term mean reversion. Very responsive. Developed by Larry Connors for his 2-period RSI strategies.

Yes. Draw trendlines connecting RSI highs or lows. Breaks often signal momentum shifts before price confirms. It's an early warning system. Also look for horizontal S/R on RSI.

RSI breadth = % of stocks with RSI > 50. Above 70% = broad bullish momentum. Below 40% = broad bearish. Use for market timing and exposure decisions. Mean RSI of portfolio also helps identify extremes.

Buy calls on RSI crossing above 30 (30-45 DTE, ATM). Sell bull put spreads when RSI < 30 (oversold unlikely to break support). Extreme RSI often coincides with high IV - good for premium selling.