Relative Strength Index (RSI): Identify Levels of Overbought and Oversold Market Conditions

The Relative Strength Index (RSI) is a platform based trading indicator that looks at both volume and price momentum when gauging the velocity of a financial instrument. Regardless of being oversold or overbought, any market condition can be analyzed using the Relative Strength Index. This is accomplished by calculating a financial instrument’s momentum of losses and gains during a predetermined period of time (typically 14 days).

Overbought Relative Strength Index Level

The Relative Strength Index level used most frequently on trading platforms to decide on an action based on an overbought reading is 70.

• If a Relative Strength Index reading of 70 or greater occurs, you may want to consider selling the financial instrument in the near future as trader interest might be too great to stay in the trade
• Additionally, if a Relative Strength Index reading of 70 or greater occurs, you may want to consider setting a sell stop order on your online trading platform to either leave a position or enter a short position Continue reading “Relative Strength Index (RSI): Identify Levels of Overbought and Oversold Market Conditions”