RSI compares the magnitude of recent gains to recent losses on a scale of 0 to 100. It's the most popular momentum indicator because it's simple to read and generates clear signals. The default period is 14.
RSI = 100 − [100 / (1 + Average Gain / Average Loss)]The Three Zones
| RSI Level | Meaning |
|---|---|
| Above 70 | Overbought — rally may be exhausted |
| 30–70 | Neutral — trend continuation zone |
| Below 30 | Oversold — decline may be exhausted |
In a strong uptrend, RSI can stay above 70 for days or weeks. Selling just because RSI is over 70 is a classic beginner mistake — you're fighting a strong trend. Use overbought as a caution flag, not a sell signal by itself.
The 50 Line: Trend Bias
The 50 line is an underused but powerful feature. When RSI is above 50, bulls are in control; below 50, bears. Many traders use a cross of the 50 line as a trend-confirmation signal, especially in ranging markets.
Divergence: The Strongest RSI Signal
Divergence is when price and RSI disagree. This is the most reliable RSI signal — it warns that momentum is fading before price turns.
Bearish Divergence
Price makes a higher high, but RSI makes a lower high. The rally is running out of fuel — the new high was made with less conviction. This often precedes a reversal.
Bullish Divergence
Price makes a lower low, but RSI makes a higher low. The decline is losing strength — sellers are exhausted. This is a classic bottoming signal.
Divergence is strongest when it appears at a major support or resistance level. RSI bullish divergence at a 200 EMA support is a textbook reversal setup. CURIO's pattern engine flags these automatically.
How to Trade RSI
- ▸Use RSI as a confirmation, never as a standalone signal.
- ▸Trend trades: take longs when RSI crosses above 50 in an uptrend; shorts when it crosses below.
- ▸Divergence trades: wait for divergence + a candlestick confirmation at a key level.
- ▸Don't fade overbought/oversold in strong trends — wait for the trend to break first.