Overbought And Oversold
RSI is a great indicator as it can show moments of oversold and overbought conditions. When RSI value is at or above 70 it is in overbought territory. Conversely, when RSI value is at or below 30 it is oversold. These areas can indicate a reversal in price action in the near future.
You can see many instances where overbought and oversold conditions lead to a short-term reversal in the price action. It is not always spot on, but RSI can be useful in these instances.
Some consider the 50 value on RSI a turning point in the price action's trend. During a healthy rally RSI will stay above the fifty value continually bouncing off of this value just when it looks like the uptrend might be ending. Similarly in a solid downtrend RSI will stay below the 50 value.
You can see on this chart of SPY that RSI stays above 50 during a healthy uptrend.
In a downtrend RSI value will regularly stay below the 50 value.
It can be useful to use MACD and KDJ in conjunction as they give you a longer-term and shorter-term picture of price trend and may help to point out false oversold and overbought conditions.
In the chart directly above you can see RSI flipping to a downtrend after remaining in overbought territory for some time. MACD flipped to bearish territory at the same time somewhat confirming this reversal in price action.
$SPDR S&P 500 ETF(SPY.US$ $SPDR Dow Jones Industrial Average Trust(DIA.US$ $Invesco QQQ Trust(QQQ.US$ $CBOE Volatility S&P 500 Index(.VIX.US$ $Crude Oil Futures(JUN4)(CLmain.US$ $Hang Seng TECH Index(800700.HK$ $Hang Seng Index(800000.HK$ $SSE Composite Index(000001.SH$ $SSE 50 Index(000016.SH$ $CSI 300 Index(000300.SH$ $Evoke Pharma(EVOK.US$ $Fangdd Network(DUO.US$ $Luokung Technology(LKCO.US$
In the chart directly above you can see RSI flipping to a downtrend after remaining in overbought territory for some time. MACD flipped to bearish territory at the same time somewhat confirming this reversal in price action.
$SPDR S&P 500 ETF(SPY.US$ $SPDR Dow Jones Industrial Average Trust(DIA.US$ $Invesco QQQ Trust(QQQ.US$ $CBOE Volatility S&P 500 Index(.VIX.US$ $Crude Oil Futures(JUN4)(CLmain.US$ $Hang Seng TECH Index(800700.HK$ $Hang Seng Index(800000.HK$ $SSE Composite Index(000001.SH$ $SSE 50 Index(000016.SH$ $CSI 300 Index(000300.SH$ $Evoke Pharma(EVOK.US$ $Fangdd Network(DUO.US$ $Luokung Technology(LKCO.US$
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MrPwnage : You may want to edit your post, it says “near or over 70 is oversold and at or below 30 is oversold” in the first paragraph! Just looking out
SpyderCallOP MrPwnage: thanks
SpyderCallOP MrPwnage: all good now i think. i shoulda proof read my post. oops.
MrPwnage SpyderCallOP: Looks good now, my dude! No worries, didn't want any confusing happening for newer investors, ya know? Let's make some money
SpyderCallOP MrPwnage: lets get it!!
Meta Moo : Nice post!