What is Relative Strength Index?

The RSI index is a tool used to measure the strength of a trend. RSI is a momentum indicator like MACD ,They predict about the strength of something. RSI  shows values from 0 to 100 on a chart .

What is overbought or oversold condition?

• High values mean a stock is overbought, which means it is trading above its true value. In RSI Chart reading above 70 shows this condition.
• Low values mean a stock is oversold, meaning it is trading below its true value. In RSI Chart reading below 30 will be shown to reflect this condition.

How to use RSI in trading?

Like a normal chart, we can draw trendlines on an RSI chart to find its resistance and support levels. Remember, the RSI value ranges from 0 to 100. Here are the key points:

Draw trendlines on the RSI chart to mark resistance and support levels.

Support and Resistance in an Uptrend

• Resistance is usually between 70 and 90, with the RSI mostly hovering around these levels.
• Support is around 50 or 60.

Support and Resistance in a Downtrend

• – Resistance is around 50 or 60.
• Support is usually between 10 and 20, with the RSI mostly hovering around these levels.

Now once you draw these levels you may ask what is the purpose of such drawing?

Combining Price Action Strategy with RSI

How to look for uptrend?

After drawing trendlines on the RSI chart, let’s say the RSI is around 10 or 20 and slowly moving towards 40 or 50. At the same time, on the price chart, you see a bullish engulfing pattern with increasing volume in the support area. This can indicate the start of a new uptrend.

Similarly, traders can use this technique to find a downtrend early. Remember, RSI is a lagging indicator, so it shows signals after the market has already moved. Therefore, it’s good to combine it with other strategies like price action trading and indicators like MACD. To learn more about MACD, read here. In my next blog, I will discuss how to use MACD, RSI, and price action strategy together.