- RSI values over 70 indicate overbought conditions, suggesting a potential sell signal.
- RSI values under 30 indicate oversold conditions, which might be a buy signal.
- Look for divergence between RSI and price movement for early signs of a trend reversal.
So, I've been messing around with this thing called the Relative Strength Index (RSI) in my never-ending quest to decode this mad world of market analysis. I get that it's some fancy formula used to rate the strength and speed of a stock's price movement by comparing upward and downward close-to-close changes. But man, I'm at a loss when it comes to actually using this thing in actual analysis and making trading decisions based on it. Can anyone breakdown how you use this in a practical sense? How do you interpret the RSI numbers? What's considered overbought or oversold? Share your RSI wisdom, thanks!
When the RSI hits above 70, that typically signals a stock might be overbought, so it could be heading for a price drop. On the flip side, if it goes below 30, it could be oversold and the price might rebound. The trick is to watch for these key levels and the trends that follow.
Very true, and don't forget, the great thing about RSI is that it can also help identify potential trend reversals. When the RSI starts rising while price continues to drop, or dropping while price goes up, it could be signaling a possible price reversal. But remember, no indicator is 100% accurate, always use it as part of a wider strategy.
Well, all this reliance on RSI does cause me a bit of apprehension. I mean, sure, it does a decent job in predicting trends in a static market. But let's not forget that markets are far from static. They're influenced by a huge variety of factors, many of which are unpredictable. Tell me, how does RSI account for sudden, unexpected market events? And how reliable is it really in volatile markets? Won't it give false signals when prices are swinging wildly? Don't get me wrong, but isn't relying solely on RSI a bit like trying to navigate a maze with just one eye open? I'd love to hear what you guys think about this.
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