RSI oscillates between zero and 100. Traditionally, and according to Wilder, RSI is considered overbought when above 70 and oversold when below 30. Signals can also be generated by looking for divergences, failure swings, and centerline crossovers. RSI can also be used to identify the general trend.
Here are some trading rules that should help with profitability.
- Buy when the RSI indicator rises above 30 from below, especially if accompanied by high volume (or volume trends upward).
- Sell when the RSI indicator drops below 70 from above, especially if accompanied by high volume (or volume trends upward).
- If RSI is midrange (between 30 and 70), then ignore it, including divergence signals.
- Trade after a straight-line price run and divergence appears with the RSI indicator.