The RSI indicator is one of the most popular trading indicators around. It’s incredibly simple to use, read, and make money on.
Before I go any further though, you should be aware that you shouldn’t base your trading strategy entirely on this indicator. It’s not a fool-proof indicator, so learn some more before diving into the financial markets, RSI in tow.
The image above shows prices dropping rapidly after the RSI crosses above the 70 line, and soon after begins rising after the RSI crosses the 30 line.
When the RSI indicator crosses above the 70 line, the market is considered over-bought. If something is over-bought, the prices are unnaturally high and should in theory drop relatively quickly.
If the RSI indicator crosses below the 30 line, the market is then considered over-sold. When something is over-sold, it is unnaturally cheap and will rally upwards.
The above is the simplest example of how the RSI is used. In later tutorials I’ll discuss RSI divergence. A more robust method of using the RSI.