When RSI moves into overbought zone (> 70) and then reverts back below overbought zone (<70), then initiate a short trade.
When RSI moves into oversold zone (<30) and then reverts back above oversold zone (>30), then initiate a long trade.
When RSI makes a higher high and price makes a lower low (Bullish Divergence), initiate a long trade.
When RSI makes a lower low and price makes a higher high (Bearish Divergence), initiate a short trade.
Points to remember while trading using RSI:
- RSI in overbought levels (>70) does not always indicate an overbought Market.
- RSI in oversold levels (<30) does not always signify an oversold Market.
- The RSI can remain in overbought / oversold zones for long periods of time.
- A bullish divergence may not always lead to a rise in prices.
- A bearish divergence may not always lead to a fall in prices.