Part One: Seek to buy the dip with the RSI indicator

Post your learning results by taping the discussion: How does RSI tell whether your stock is potentially overbought or oversold?

Hi, mooers!

The 3rd TA challenge is live!  In this new session, we're going to learn how to use the relative strength index(RSI) to try to spot the dip of a stock. Say no more. Fasten your seat belt. Let's hit the road!

We can use it to determine potential tops and bottoms of the trend depending on whether the security is overbought or oversold. Below is a daily chart of a specific stock.

This stock dropped in the middle of January when the RSI rose above 70, signaling that the stock was overbought and the possibility of a price decrease was high. After that, the RSI dropped below 30 in the same month, suggesting that there might be fewer sellers left in the market and that the move could be over. Price then reversed and headed back up.

Tips: If you bought an overbought stock, you could combine the RSI with the dollar-cost averaging(DCA) to help reduce risks and better manage your positions.

RSI is easy to use, right? Do you want to have a try? Let's see whether your stock might be overbought or oversold. Don't let the market take away your profits.

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This article is for informational and educational use only and is not a recommendation or endorsement of any particular investment or investment strategy. Investment information provided in this video is general in nature, strictly for illustrative purposes, and may not be appropriate for all investors. It is provided without respect to individual investors’ financial sophistication, financial situation, investment objectives, investing time horizon, or risk tolerance. You should consider the appropriateness of this information having regard to your relevant personal circumstances before making any investment decisions. Past investment performance does not indicate or guarantee future success. Returns will vary, and all investments carry risks, including loss of principal.