RSI Indicator | Overbought Oversold Judgment & Divergence Trading Method Quick Reference

What is RSI?

RSI (Relative Strength Index) measures the strength of price movements on a scale of 0-100. In simple terms: strong uptrend → rising numbers, strong downtrend → falling numbers.

How to interpret overbought and oversold?

• RSI > 70: Market is overbought, a correction may be needed.
• RSI < 30: The market is oversold and may be due for a rebound.

This is just a signal of overreaction, not a 100% trading signal.

Breakdown of RSI Formula

RSI = 100 - (100 / (1 + RS)) RS = Average Gain / Average Loss

Just know: The larger the price fluctuation, the larger the RS, and the closer the RSI is to 100.

How to choose parameters?

There are no best parameters, only the parameters that are most suitable for you.

What is RSI Divergence?

Price hits a new high but RSI does not follow = bearish divergence (bearish signal) Price hits a new low but RSI hasn't followed down = bullish divergence (bullish signal)

Divergence ≠ inevitable reversal, it is just a reminder of insufficient momentum, which needs to be confirmed with other indicators.

3 Major Trading Methods

1. Overbought and Oversold Zones: The most intuitive, enter directly at 70/30.
2. Divergence Judgment: Reduce positions in hand to avoid risks.
3. Midline Cross: RSI crosses 50 to determine trend reversal

⚠️ Common Pitfalls

• There are many false signals in a strong trend (RSI may remain >70 for a long time during strong upward movements)
• Ignoring time cycle differences (short-term oversold ≠ major level buying point)
• Over-reliance on a single indicator (combining MACD, moving averages, and candlestick patterns is more stable)

Core Recommendations

RSI is useful but not a panacea. Beginner's suggestion: Adjust parameters → Set strategy → Combine with other indicators → Start with small orders.