RSI – Looking for extremes

RSI showing extreme price moves

The RSI, or Relative Strength Index, is a popular indicator largely derived from visual analysis, which was developed J. Welles Wilder Jr.The RSI was developed to accurately detect extreme price movements.

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A very high RSI value could indicate an overly fierce price movement, after which prices could correct downwards. A low RSI value stands for a weak price movement. A very low RSI value usually means that prices have fallen too far, with a technical rally as the result.The RSI must not be confused with Relative Strength (RS), where the price of a specific stock is compared with the price of another stock or security. 

Generally speaking, a stock’s RSI oscillates between two fixed values. If the chart exceeds the 70% line, then the stock is overbought. If it breaks the 30% line, then the stock is oversold.
The RSI buy/sell signals with the standard parameters can only be used in a trading market. 
The closer the input oversold/overbought levels get to the 50% zero line, the more trend-following and lagging the signals become. The crossings of the RSI line with the 50% value are in effect trend-following signals, i.e. an upward crossing is a buy signal and a downward crossing is a sell signal.

The RSI is a popular indicator among technical analysts. It owes its reputation largely to the support provided by visual technical analysis, using divergences, for instance. As a stand-alone trading system, RSI performance is usually moderate.

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  • RSI period (14)
  • Oversold level (30)
  • Overbought level (70)


The RSI provides a buy signal when the indicator line crosses the oversold line in an upward movement, and a sell signal if the indicator line crosses the overbought line in a downward movement. 





This example shows an RSI indicator based on the 30-minute chart in the NanoTrader trading platform. The oversold level was set at 90 (Threshold Long) and the oversold level at 10 (Threshold Short). If the overbought line is crossed , a sell signal is generated. In the NanoTrader this is indicated by red arrows. Here, the interpretation can even be viewed and conveniently edited.

RSI Short signal set up

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If there is an upwards crossing of the oversold line, a buy signal is generated.

RSI Long Signal

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